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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950135-01-503935.txt : 20020413
<SEC-HEADER>0000950135-01-503935.hdr.sgml : 20020413
ACCESSION NUMBER: 0000950135-01-503935
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011220
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CABOT CORP
CENTRAL INDEX KEY: 0000016040
STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890]
IRS NUMBER: 042271897
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05667
FILM NUMBER: 1819907
BUSINESS ADDRESS:
STREET 1: TWO SEAPORT LANE SUITE 1300
CITY: BOSTON
STATE: MA
ZIP: 02109-1806
BUSINESS PHONE: 6173450100
MAIL ADDRESS:
STREET 1: TWO SEAPORT LANE SUITE 1300
CITY: BOSTON
STATE: MA
ZIP: 82109
FORMER COMPANY:
FORMER CONFORMED NAME: CABOT GODFREY L INC
DATE OF NAME CHANGE: 19680418
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>b41315cce10-k405.txt
<DESCRIPTION>CABOT CORPORATION
<TEXT>
<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5667
CABOT CORPORATION
(Exact name of Registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 04-2271897
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
TWO SEAPORT LANE, SUITE 1300 02210
BOSTON, MASSACHUSETTS (Zip Code)
(Address of Principal Executive Offices)
</Table>
(617) 345-0100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE PER SHARE:
<Table>
<S> <C>
62,174,071 Shares Outstanding Boston Stock Exchange
At November 30, 2001 New York Stock Exchange
Pacific Exchange
</Table>
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X]
The aggregate market value of the Registrant's common stock held
beneficially or of record by shareholders who are not directors or executive
officers of the Registrant at November 30, 2001, was approximately
$2,124,974,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Cabot's business was founded in 1882 and incorporated in the State of
Delaware in 1960. The Company has businesses in chemicals, performance
materials, and specialty fluids. The Company and its affiliates have
manufacturing facilities in the United States and more than 20 other countries.
The terms "Cabot" and "Company" as used in this Report refer to Cabot
Corporation and its consolidated subsidiaries.
The description of the Company's businesses is as of September 30, 2001,
unless otherwise noted. Information regarding the Company's revenues and profits
by business segment and geographic area appears in the Continuing Operations
section of the Management's Discussion and Analysis of Financial Condition and
Results of Operations which appears in Item 7, and in Note Q of the Notes to the
Company's Consolidated Financial Statements, which appears in Item 8 of this
annual report on Form 10-K for the fiscal year ended September 30, 2001.
During the fiscal year ended September 30, 2001, Cabot repurchased
approximately 6.6 million shares of its common stock, $1.00 par value per share
(the "Common Stock"), for the purpose of reducing the total number of shares
outstanding as well as offsetting shares issued under the Company's employee
incentive compensation programs.
Additional information regarding significant events affecting the Company
during its fiscal year ended September 30, 2001, appears in Management's
Discussion and Analysis of Financial Condition and Results of Operations which
appears in Item 7 of this annual report on Form 10-K for the fiscal year ended
September 30, 2001.
CHEMICALS BUSINESSES
CARBON BLACK
The Company manufactures and sells carbon black. Carbon black is a form of
elemental carbon, which is manufactured in a highly controlled process, to
produce particles of colloidal size, which form into aggregates and agglomerates
during the manufacturing process. The size of these particles and aggregates,
their structure and their surface chemistry are varied to produce many different
performance characteristics in a wide variety of applications. Carbon black is
widely used to enhance the mechanical, electrical and optical properties of the
systems and applications in which it is incorporated. The Company's carbon black
products are used in three business areas: tires, industrial products and high
performance applications. Carbon blacks are used in the tire industry as a
rubber reinforcing agent and a performance additive. These products are marketed
globally and are present in all types of tires. Carbon blacks are used in the
industrial products sector in applications such as hoses, belts, extruded
profiles and molded goods. In the performance products sector of the business,
the Company manufactures highly tailored and specialized grades of carbon black
which are used as pigments, enhance conductivity and static charge control, to
provide UV protection, to enhance mechanical properties, and to provide chemical
flexibility through surface treatment. These products are used in a wide variety
of industries such as inks, coatings, cables, pipes, toners, electronics, and
plastics, among others.
The Company believes that it is the leading manufacturer of carbon black in
the world, with an estimated one-quarter of the worldwide production capacity
and market share of carbon black. The Company competes in the manufacture of
carbon black primarily with two companies having a global presence and with at
least 20 other companies in various regional markets in which it operates (see
"Other" below).
Carbon black plants owned by Cabot or a subsidiary are located in
Argentina, Australia, Brazil, Canada, Colombia, England, France (two plants),
India, Indonesia (two plants), Italy, The Netherlands, Spain and the United
States (four plants). Affiliates of the Company own carbon black plants in
China, the Czech Republic, Japan (two plants), Malaysia, Mexico and Venezuela.
Headquarters for the Company's carbon
<PAGE>
black business are located in Boston, Massachusetts, with regional headquarters
in Atlanta, Georgia (North America), Sao Paulo, Brazil (South America),
Suresnes, France (Europe) and Kuala Lumpur, Malaysia (Asia Pacific). Some of the
plants listed above are built on leased land (see "Properties," below).
The principal raw materials used in the manufacture of carbon black are
heavy oils, a portion of the residual oil pool which is derived from petroleum
refining operations and from the distillation of coal tars and the production of
ethylene throughout the world. The availability of raw materials has not been
and is not expected to be a significant factor for the Company's carbon black
business. Raw material costs are influenced by the cost and availability of oil
worldwide and the availability of various types of carbon black oils. During
fiscal year 2000 and the first three quarters of fiscal year 2001, the price of
raw materials for the carbon black business increased, but the price stabilized
in the fourth fiscal quarter of 2001.
Sales are generally made by employees of the Company or its affiliates in
the countries where carbon black plants are located. Export sales are generally
made through distributors or sales representatives in conjunction with Company
employees. In fiscal year 1999, the Company's plastics business began marketing
carbon black to the plastics industry. Sales are made under various trademarks
owned by Cabot. (See "Other," below.)
The Company's carbon black business continues to pursue a dual strategy of
cost improvement and new product development. Management continues to support
carbon black new product development initiatives that have significant customer
involvement or sponsorship. The Company's management continues to believe that
if the Company can achieve a combination of effective cost and capacity
management and commercialization of new product initiatives, the Company's
carbon black business should have earnings growth opportunities over the next
several years.
The Company combined its existing plastics business, which consisted of
concentrates and compounds, with its special blacks business into its
performance products group. The Company's plastics business now markets carbon
black, and produces and markets black and white thermoplastic concentrates and
specialty compounds, to the plastics industry. Major applications for the
materials produced and sold by the Company's plastics business include pipe and
tubing, packaging and agricultural film, automotive components, cable sheathing
and special packaging for use in the electronics industry. Customers use the
carbon black marketed by the plastics business to provide color, UV protection,
electrical conductivity and opacity in plastics. Sales are made under various
Cabot trademarks, each of which is either registered or pending in one or more
countries (see "Other" below). Sales are made by Company employees and through
sales representatives and distributors primarily in Europe (concentrates,
compounds and carbon black), North America (carbon black) and Asia
(concentrates, compounds and carbon black). The thermoplastic concentrates and
compounds sold are produced in Company facilities in Europe and Hong Kong. The
carbon black sold is produced in Company facilities in Europe, North America and
Asia. The plastics business is headquartered in Leuven, Belgium. In Europe, the
Company is one of the five leading producers of thermoplastic concentrates.
Other than carbon black feedstock, the primary raw materials used in this
business are titanium dioxide, thermoplastic resins and mineral fillers. The
price of thermoplastic resins remained steady during the second half of fiscal
2000 and during the first half of fiscal year 2001, and decreased somewhat
during the second half of fiscal year 2001. Raw materials are, in general,
readily available.
FUMED METAL OXIDES
The Company manufactures and sells fumed metal oxides, including fumed
silica and fumed alumina and dispersions thereof under various trademarks. Fumed
silica is an ultra-fine, high-purity particle used as a reinforcing, thickening,
abrasive, thixotropic, suspending or anti-caking agent in a wide variety of
products produced for the automotive, construction, microelectronics, and
consumer products industries, including adhesives, sealants, cosmetics, inks,
silicone rubber, coatings, polishing and pharmaceuticals. The headquarters for
the Company's fumed metal oxides business are located in Billerica,
Massachusetts. This business has two North American fumed metal oxides
manufacturing plants, which are located in Tuscola, Illinois and Midland,
Michigan. The Midland plant was completed in September 1999 and began operations
in November 1999. The performance of the plant was subject to delays in reaching
full anticipated output levels during
2
<PAGE>
2000. Full output and qualification were achieved in fiscal year 2001. The
Company owns a manufacturing plant in Wales and owns a manufacturing plant in
Germany. In addition, a joint venture owned 50% by the Company and 50% by an
Indian entity owns a plant in India, which began operations in the spring of
1998. Raw materials for the production of fumed silica are various chlorosilane
feedstocks. The feedstocks are either purchased or toll converted for owners of
the materials. The Company has long-term procurement contracts or arrangements
in place for the purchase of feedstock for this business, which it believes will
enable it to meet its raw material requirements for the foreseeable future. In
addition the Company buys some materials in the spot market in order to help
ensure flexibility and minimize costs. Sales of fumed metal oxides products are
made by Company employees and through distributors and sales representatives.
There are four principal producers of fumed silica in the world (see "Other"
below). The Company believes it is the leading producer and seller of this
chemical in the United States and second worldwide.
INKJET COLORANTS
Inkjet colorants are pigment-based black colorants, which are designed to
replace traditional pigment dispersions and dyes used in inkjet printing
applications. Products produced by the Company's inkjet colorants business,
formed in 1996, target various printing markets, including home and office
printers, wide format printers, and commercial and industrial printing
applications. The Company's colorants have become integral components in several
inkjet printing systems introduced to the market since 1998. Sales are made by
Company employees and through distributors and sales representatives. The
headquarters of the Company's inkjet colorants business are located in
Billerica, Massachusetts. Raw materials for the inkjet colorants business
include carbon black, as well as other products, from various sources. The
Company believes that all raw materials for this business are in adequate
supply.
PERFORMANCE MATERIALS
The Company produces tantalum, niobium (columbium) and their alloys.
Tantalum, which accounts for the majority of this business' sales, is produced
in various forms including powder and wire for electronic capacitors. Tantalum
and niobium and their alloys are also produced in wrought form for
non-electronic applications such as chemical process equipment and the
production of superalloys, and for various other industrial and aerospace
applications. The headquarters and principal manufacturing facility for this
business are in Boyertown, Pennsylvania. An affiliate of the Company has a
manufacturing plant in Japan. Raw materials are obtained by the Company from
ores mined principally in Australia, Brazil and Canada and from by-product tin
slags from tin smelting mainly in Malaysia and Thailand. Raw materials are
currently in adequate supply. Earlier in fiscal year 2001, strong markets caused
a short-term shortage in raw materials which resulted in high spot prices. Sales
in the United States are made by Company employees, with export sales to Europe
handled by Company employees, independent European sales representatives and an
affiliated company. Sales in Japan and other parts of Asia are handled primarily
through employees of the Company's Japanese affiliate. There are currently two
principal groups producing tantalum and niobium in the western world, with an
emerging competitor in China. The Company believes that it, together with its
Japanese affiliate, is the leading producer of electronic grade tantalum powder
products, with competitors having greater production in some other product lines
(see "Other" below).
SPECIALTY FLUIDS
The Company's specialty fluids business produces and markets cesium formate
as a drilling and completion fluid for use primarily in high pressure and high
temperature oil and gas well operations. Cesium formate is a solids-free
high-density fluid that has a low viscosity permitting it to flow readily in oil
and gas wells. The Company expects the fluid to be especially beneficial to
operators of wells where the oil or gas is difficult to reach. The fluid is
resistant to high temperatures, does not damage producing reservoirs and is
readily biodegradable. The Company has been shipping the fluid to facilities in
Aberdeen, Scotland, and Bergen, Norway, for application in its target market,
the North Sea. Expanded commercial tests of the Company's cesium formate in this
region during fiscal year 2001 continued to yield positive results. The Company
expects those test results to boost industry confidence in the fluid, leading to
additional applications.
3
<PAGE>
The specialty fluids business has its headquarters in The Woodlands, Texas, and
has a mine and a cesium formate manufacturing facility in Manitoba, Canada. The
Company expects to make cesium formate sales directly to oil and gas operating
companies and through existing oil field service Companies. Customers will
either rent or purchase cesium formate from the Company. Those who rent cesium
formate will be required to purchase any of the product that is not returned to
the Company after the job is completed. The principal raw material used in this
business is pollucite ore, which the Company obtains from its mine. The Company
has an adequate supply of this cesium-rich ore, with approximately 82% of the
world's known cesium reserves. Because each job for which cesium formate is used
requires a large volume of the product, the specialty fluids business must carry
a large inventory. Based on its current information, the Company expects to
reclaim between 60% and 90% of the cesium formate used in each job, which will
be returned to inventory for use in additional well operations. The Company's
specialty fluids business also markets fine cesium chemicals to various
industrial chemical companies, and mined spodumene to the pyroceramics industry.
Sales of those products are made either by Company employees or its agents.
Cabot Specialty Fluids also mines and processes tantalum ore for shipment to
Cabot Performance Materials.
DISCONTINUED BUSINESSES
As reported in the Company's Form 8-K filed October 3, 2000, on September
19, 2000 the Company sold all of its liquefied natural gas (LNG) business, which
is being reported as a discontinued operation in the Financial Information being
filed as a part of this annual report on Form 10-K. The Company also completed
the initial public offering of approximately 20% of its microelectronics
materials business, conducted by Cabot Microelectronics Corporation, in the
third quarter of fiscal year 2000. The offering was followed by a distribution
of the Company's remaining shares of Cabot Microelectronics Corporation common
stock to Cabot shareholders which was completed on September 29, 2000, which was
also reported in the Company's Form 8-K filed October 3, 2000. This business is
also being reported as a discontinued operation in the Financial Information
being filed as a part of this annual report on Form 10-K. See Note C of the
Notes to the Company's Consolidated Financial Statements which appears in Item 8
of this annual report on Form 10-K for the fiscal year ended September 30, 2001.
OTHER
The Company owns and is a licensee of various patents, which expire at
various times, covering many of its products, as well as processes and product
uses. Although the products made and sold under these patents and licenses are
important to the Company, the loss of any particular patent or license would not
materially affect the Company's business, taken as a whole. The Company sells
its products under a variety of trademarks, the loss of any one of which would
not materially affect the Company's business, taken as a whole.
With the exception of the Company's former LNG business referred to above,
the Company's businesses are generally not seasonal in nature, although they
experience some decline in sales in the fourth fiscal quarter due to European
summer plant shutdowns. The Company believes that as of September 30, 2001,
approximately $209 million of backlog orders for its businesses were firm,
compared to firm backlog orders as of September 30, 2000 of approximately $176
million. Backlog consists of firm purchase orders for which a delivery date has
been scheduled. Because customers may generally cancel purchase orders with
little or no notice without any significant penalty, and because most orders are
typically shipped within 30 days of receipt, backlog at any particular time is
not typically a good indicator of future revenues. All of the 2001 backlog
orders are expected to be filled during fiscal year 2002.
Many of the Company's chemicals and materials are used in products
associated with the automotive industry such as tires, extruded profiles, hoses,
molded goods, capacitors and paints. The Company's financial results are
affected by the cyclical nature of the automotive industry, although a large
portion of the market is for replacement tires and other parts which are less
subject to automobile industry cycles. The Company has in the past entered into
long-term carbon black supply contracts with certain of its North American tire
customers and expects to pursue a similar strategy under appropriate
circumstances. Those contracts are designed to provide such customers with a
secure supply of carbon black and reduce the volatility in the Company's carbon
black volumes and margins caused, in part, by automobile industry cycles.
4
<PAGE>
Five major tire and rubber customers, one fumed metal oxides customer,
three capacitor materials customers and one microelectronics customer represent
a material portion of the total net sales and operating revenues of the
Company's businesses; the loss of one or more of these customers might
materially adversely affect the Company's businesses taken as a whole.
Competition in the Company's businesses is based on price, service,
quality, product performance and technical innovation. Competitive conditions
also necessitate carrying an inventory of raw materials and finished goods in
order to meet customers' needs for prompt delivery of products. Competition in
quality, service, product performance and technical innovation is particularly
significant for the fumed metal oxides, industrial products, special blacks,
inkjet colorants and tantalum businesses. The Company's competitors, other than
in the carbon black business, vary by product group.
The Company owns approximately 41.4% of the common stock of Aearo
Corporation (formerly Cabot Safety Holdings Corporation) after the restructuring
of the Company's safety products and specialty composites business in July 1995.
The Company has two representatives serving on the Board of Directors of Aearo
Corporation and its principal subsidiaries ("Aearo"). Aearo manufactures and
sells personal safety products, as well as energy absorbing, vibration damping
and impact absorbing products for industrial noise control and environmental
enhancement.
EMPLOYEES
As of September 30, 2001, the Company had approximately 4,300 employees.
Approximately 450 employees in the United States are covered by collective
bargaining agreements. The Company believes that its relations with its
employees are satisfactory.
RESEARCH AND DEVELOPMENT
The Company develops new and improved products and processes and greater
operating efficiencies through Company-sponsored research and technical service
activities including those initiated in response to customer requests.
Expenditures by the Company for such activities are shown in the Consolidated
Statements of Income which appears in Item 8 of this annual report on Form 10-K
for the fiscal year ended September 30, 2001.
SAFETY, HEALTH AND ENVIRONMENT
The Company's operations are subject to various environmental laws and
regulations. Over the past several years, the Company has expended considerable
sums to add, improve, maintain and operate facilities for environmental
protection.
The Company has been named as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(the "Superfund law") with respect to several sites (see "Legal Proceedings,"
below). During the next several years, as remediation of various environmental
sites is carried out, the Company expects to spend a significant portion of its
$30 million environmental reserve for costs associated with such remediation.
Adjustments are made to the reserve based on the Company's continuing analysis
of its share of costs likely to be incurred at each site. The sites are
primarily associated with divested businesses.
In 1996, the International Agency for Research on Cancer ("IARC") revised
its evaluation of carbon black from Group 3 (insufficient evidence to make a
determination regarding carcinogenicity) to Group 2B (known animal carcinogen,
possible human carcinogen), based solely on results of studies of female rat
responses to the inhalation of carbon black. The Company has communicated this
change in IARC's evaluation of carbon black to its customers and employees and
has made changes to its material safety data sheets and elsewhere, as
appropriate. The Company continues to believe that available evidence, taken as
a whole, indicates that carbon black is not carcinogenic to humans, and does not
present a health hazard when handled in accordance with good housekeeping and
safe workplace practices as described in the Company's material safety data
sheets.
5
<PAGE>
In October 1999, the California Office of Environmental Health Hazard
Assessment ("OEHHA") published a Notice of Intent to add "carbon black (airborne
particles of respirable size)" to its list of chemicals known to the state to
cause cancer promulgated pursuant to the California Safe Drinking Water and
Toxic Enforcement Act, commonly referred to as Proposition 65. OEHHA stated it
was taking this action in light of IARC's 1996 reclassification of carbon black.
Proposition 65 requires businesses to give warnings to individuals before they
knowingly or intentionally expose them to chemicals subject to its requirements,
and it prohibits businesses from knowingly discharging or releasing the
chemicals into water or onto land where they could contaminate drinking water.
The Company is working with the International Carbon Black Association and
various customers and carbon black user groups to respond to the decision by
OEHHA to add carbon black to the list of chemicals subject to Proposition 65.
FORWARD-LOOKING INFORMATION
Included herein are statements relating to management's projections of
future profits, the possible achievement of the Company's financial goals and
objectives, and management's expectations for the Company's product development
program. Actual results may differ materially from the results anticipated in
the statements included herein due to a variety of factors, including but not
limited to the following: market supply and demand conditions, fluctuations in
currency exchange rates, changes in the rate of economic growth in the United
States and other major international economies, changes in regulatory
environments, changes in trade, monetary and fiscal policies around the world,
pending and future litigation, cost of raw materials, patent rights of the
Company and others, demand for the Company's customers' products and
competitors' reactions to market conditions. Timely commercialization of
products under development by the Company may be disrupted or delayed by
technical difficulties, market acceptance or competitors' new products, as well
as difficulties in moving from the experimental stage to the production stage.
The risk management discussion and the estimated amounts generated from the
analyses are forward-looking statements of market risk, assuming certain adverse
market conditions occur. Actual results in the future may differ materially from
these projected results due to actual developments in the global financial
markets. The methods used by the Company to assess and mitigate risks should not
be considered projections of future events or losses. The Company undertakes no
obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document.
FINANCIAL INFORMATION ABOUT SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Segment financial data are set forth in the Continuing Operations section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7, and in Note Q of the Notes to the Company's Consolidated
Financial Statements, which appears in Item 8 of this annual report on Form 10-K
for the fiscal year ended September 30, 2001. The Company's former LNG business
and microelectronics materials business are being reported as discontinued
operations in the Financial Information being filed as a part of this annual
report on Form 10-K. A significant portion of the Company's revenues and
operating profits is derived from overseas operations. The profitability of the
Company's segments is affected by fluctuations in the value of the U.S. dollar
relative to foreign currencies. (See the Geographic Area Information portion of
Note Q for further information relating to sales and profits and long-lived
assets by geographic area and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".) Currency fluctuations and nationalization
and expropriation of assets are risks inherent in international operations. The
Company has taken steps it deems prudent in its international operations to
diversify and otherwise to protect against these risks, including the use of
foreign currency financial instruments to reduce the risk associated with
changes in the value of certain foreign currencies compared to the U.S. dollar.
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Management" in Item 7, and Note P of the Notes to the
Company's Consolidated Financial Statements, which appears in Item 8, of this
annual report on Form 10-K for the fiscal year ended September 30, 2001.)
6
<PAGE>
ITEM 2. PROPERTIES
The Company owns, leases and operates office, production, storage,
distribution, marketing and research and development facilities in the United
States and in foreign countries.
The principal facilities of the Company's business units are described
generally in Item 1 above.
The principal facilities owned by the Company in the United States are: (i)
the administrative offices and manufacturing plants of its carbon black
operations in Louisiana, Massachusetts, Texas and West Virginia; (ii) its
research and development facilities in Illinois, Massachusetts and Pennsylvania;
(iii) administrative offices and manufacturing plants of its fumed metal oxides
business in Illinois and Michigan, and (iv) its performance materials business
in Pennsylvania.
The Company's principal foreign facilities are held through subsidiaries
and consist primarily of manufacturing facilities, together with administrative
facilities and research and development facilities. The largest of such
facilities are located in Australia, China, the Czech Republic, England, France,
India, Indonesia and Italy, and are used by the Company's carbon black business.
Administrative offices and manufacturing facilities of the fumed metal oxides
business are owned in Wales and Germany. Portions of the owned facilities in the
Czech Republic, France, Japan and Spain, and all of the owned facilities in
China, Hong Kong, India, Indonesia, The Netherlands and Wales are located on
leased land.
The principal facilities leased by subsidiaries in locations outside the
United States are administrative offices and research and development facilities
of the carbon black operations in France and Malaysia, and administrative
offices and manufacturing facilities of the specialty fluids business in Canada,
and a sales facility in Norway. In addition, the Company holds mining rights in
Canada.
The principal facilities leased by the Company in the United States are:
(i) its corporate headquarters in Massachusetts, and (ii) the headquarters of
its North American carbon black business in Georgia.
The Company's administrative offices are generally suitable and adequate
for their intended purposes. Existing manufacturing facilities of the Company
are sufficient to meet the Company's anticipated requirements for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits and environmental
proceedings wherein substantial amounts are claimed. The following is a
description of the significant proceedings pending as of September 30, 2001,
unless otherwise specified.
ENVIRONMENTAL PROCEEDINGS
In November 1997, Cabot was sued in the District Court of Potter County,
Texas by K N Energy, Inc. ("KNE") and various related entities for environmental
remediation costs at approximately 45 gas plants and compressor stations located
in New Mexico, Oklahoma and Texas. In July 1998, an arbitration panel ordered
Cabot to pay $3.38 million for past response costs incurred by KNE as well as up
to 80% of future groundwater remediation costs at six of the sites as such costs
are incurred by KNE. Cabot and Kinder Morgan, Inc., (KNE's successor) have
agreed in principle to settle all remaining issues with Cabot paying an
additional $942,000 and taking remedial responsibility directly at three of the
remaining disputed sites.
Beginning in May 1986, the New Jersey Department of Environmental
Protection ("NJDEP") issued directives under New Jersey's cleanup law to Cabot
and a number of other potentially responsible parties ("PRPs") to fund an
investigation for the cleanup of a six-acre site known as the Evor Phillips Site
in Old Bridge Township near Perth Amboy, New Jersey ("Site"). Cabot and other
PRPs subsequently entered into various Administrative Consent Orders ("ACOs")
with NJDEP to fund and perform various investigations of the Site. Cabot and
certain other PRPs also initiated litigation against the current site owner and
other parties in the United States District Court for the District of New Jersey
to obtain monetary contribution and deed restrictions on the Site. In addition,
two PRPs, Union Carbide Corp. and Oakite Products, filed separate contribution
actions against Cabot and other PRPs. The court has consolidated the actions.
The PRPs have
7
<PAGE>
agreed in principle to an ACO with the NJDEP to perform further investigation
and the final remedy for the Site. The PRPs have also agreed to a settlement in
principle with Union Carbide Corp. and Oakite Products.
In 1986, Cabot sold a manufacturing facility in Reading, Pennsylvania to
NGK Metals, Inc. ("NGK"). In doing so, Cabot agreed to share with NGK the costs
of certain environmental remediation of the Reading plant site. After the sale,
the United States Environmental Protection Agency ("EPA") issued an order to NGK
requiring it to address soil and groundwater contamination at the site.
Remediation activities at the Reading property are ongoing and the Company is
contributing to the costs associated with those activities pursuant to the
cost-sharing agreement with NGK.
Cabot is one of approximately 25 parties identified by EPA as PRPs under
the Superfund law with respect to the cleanup of Fields Brook (the "Brook"), a
tributary of the Ashtabula River in northeast Ohio. From 1963 to 1972, Cabot
owned two manufacturing facilities located beside the Brook. Pursuant to an EPA
administrative order, 13 companies, including Cabot, are performing the design
and other preliminary work relating to remediation of sediment in the Brook and
soil in the floodplain and wetlands areas adjacent to the Brook. In 1997, EPA
and the companies reached agreement on the remedy for these areas; EPA made
certain changes to that remedy in response to its finding low levels of
previously undetected radioactive material in the Brook. In addition, EPA's cost
recovery claims have been settled, and the companies have negotiated consent
decrees with EPA, the State of Ohio and the Natural Resource Trustees that
settle the governments' claims for past costs and natural resource damages and
obligates the companies to implement the agreed remedy. Those consent decrees
were entered by the United States District Court for the Northern District of
Ohio on July 7, 1999. Remediation efforts at the site are ongoing.
During the summer of 1998, Cabot joined a group of companies in forming the
Ashtabula River Cooperative Group ("ARCG") which collectively agreed on an
allocation for funding private party shares of a public/private partnership (the
Ashtabula River Partnership (the "ARP")), established to conduct navigational
dredging and environmental restoration of the Ashtabula River (the "River") in
Ashtabula, Ohio. The ARP expects to obtain additional funding from both the
federal and state governments for the project under the Federal Water Resources
Development Act ("WRDA"). In September 1999, the ARP issued a Comprehensive
Management Plan ("CMP") which placed an initial estimate of $42 million on the
project. An updated cost estimate for the project of approximately $48 million
was recently released by the U.S. Army Corps of Engineers as part of the WRDA
process. Under the statutory formula available for funding this project under
WRDA, approximately 68% of its cost is to be borne by the federal government,
leaving 32% of the cost for non-federal participants. The State of Ohio has
pledged a contribution of $7 million to the project. The ARCG expects to be
asked to bear a substantial percentage of the remaining costs. In addition, the
ARCG has received a notice of claim for natural resource damages related to the
River and the amount of that claim remains to be negotiated with the Natural
Resource Trustees.
In June, 2001 Cabot signed a Consent Order with the West Virginia
Department of Environmental Protection, Office of Air Quality (the "Agency")
regarding Cabot's carbon black manufacturing facility in Waverly, West Virginia.
The Consent Order resolves claims by the Agency that the Waverly facility was
not in compliance with certain air permitting and regulatory requirements. Under
the Consent Order, Cabot was required to submit a penalty payment of $200,000 to
the Agency's Air Pollution and Education Fund. Cabot was also required to submit
an air permit application to the Agency by September 1, 2001 (which date was
subsequently extended to October 1, 2001), and the application was submitted.
The Consent Order also imposes certain operational and recordkeeping
requirements on the Waverly facility, none of which are expected to have a
material adverse effect on the Company.
In 1994, Detrex Chemical Industries, Inc. filed third-party complaints
against eight companies, including Cabot, in connection with material allegedly
sent to the Koski/Reserve Environmental Services ("RES") landfill in Ashtabula,
Ohio. Cabot and other third-party defendants filed complaints against five
additional companies that sent waste to the site. In May 1998, Cabot and certain
other defendants agreed to settle their liability for this matter by agreeing to
fund and conduct a portion of the remedy at the landfill site and to loan RES
$1.2 million to fund cleanup activities of RES on other portions of the site.
Cabot is one of five of the
8
<PAGE>
settling defendants that agreed to conduct the work; the others made one-time
cash payments to resolve their liabilities at the site.
Cabot is the holder of a Nuclear Regulatory Commission ("NRC") license for
certain slag waste material deposited on industrial property on Tulpehocken
Street in Reading, Pennsylvania in the late 1960s by a predecessor of Cabot that
had leased a portion of the site to process tin slags. The slag material
contains low levels of uranium and thorium, thus subjecting it to NRC
jurisdiction. A consultant for Cabot has prepared a site decommissioning plan
for the slag material which concludes that the levels of radioactivity in the
slag are low enough that the material can be safely left in place and still meet
NRC requirements for license termination without restrictions. Cabot's
decommissioning plan proposing this in-place remedy was filed with the NRC in
late August 1998. The current owner of the Tulpehocken Street site, the City of
Reading and the Reading Redevelopment Authority (the "RRA") filed requests for a
hearing with the NRC concerning Cabot's decommissioning plan, alleging various
deficiencies with the plan. In October 2000, Cabot reached an agreement with the
City of Reading and the RRA to settle their claims. Under that agreement,
assuming the NRC approves Cabot's decommissioning plan, Cabot will pay a fixed
amount to the RRA in three separate installments over three or more years. In
exchange, the RRA has agreed to maintain the slag on the site and prohibit its
disturbance or removal. Cabot continues to work with the NRC to obtain approval
of the decommissioning plan.
In July 1991, EPA instituted litigation against a number of parties, not
including Cabot, seeking to recover its costs incurred in connection with an
investigation of the Berks Associates Superfund Site in Douglassville,
Pennsylvania. Cabot was joined in this litigation as a third-party defendant. In
April 1996, EPA proposed that ten companies, including Cabot, undertake the
remaining remediation required at the site and indicated it would be willing to
reconsider, to some extent, the remediation technology to be used. After further
study, the EPA agreed that the alternative remedy is feasible. The companies'
consultant estimates the cost to implement the alternative remedy at the site is
approximately $13 million to $18 million. The companies, including Cabot, have
entered into a Consent Decree concerning implementation of the alternative
remedy and payment of certain EPA past costs.
In 1994, EPA issued a Unilateral Administrative Order to Cabot and 11 other
respondents pursuant to the Superfund law with respect to the Revere Chemical
Site (a/k/a Echo Site) in Nockamixon Township, Bucks County, Pennsylvania (the
"Revere Chemical Site"). The order required the respondents to design and
implement several remedial measures at the Revere Chemical Site. Cabot responded
to EPA's order by indicating that it should not have been named as a respondent
and by raising several objections to the order. Certain other recipients of the
order proceeded to conduct the work required by EPA, and Cabot understands that
the remedial work has been completed. Cabot entered into a settlement agreement
with the performing parties in October 2001 covering response costs at the site.
Cabot has been informed by the parties who performed the work that the total
cost of cleanup activities at the site is estimated to be approximately $12
million, not including certain unreimbursed costs claimed by EPA. In August
1999, Cabot received a letter from the U.S. Department of Justice ("DOJ"), which
stated that EPA had asked the DOJ to bring an enforcement action against Cabot
for its failure to comply with the EPA order. Cabot has entered into settlement
discussions with the DOJ and EPA in an attempt to resolve that dispute.
The EPA has completed an investigation of certain areas surrounding the
Company's Boyertown, Pennsylvania facility. The investigation was prompted by
media reports of complaints by area farmers of health impacts and damage to
livestock and crops allegedly associated with emissions from the Boyertown
facility. In a report dated November 2000, EPA stated that increased
concentrations of some elements in environmental media at locations near the
Boyertown site did not pose a health threat to the broad community necessitating
a cleanup action by the EPA. The EPA report concluded that EPA could find no
relationship between industrial emissions and reported poor farm production and
animal health concerns. In November 1999, Cabot received a letter from an
attorney representing certain farmers in the area threatening litigation
concerning contamination alleged to be caused by the Boyertown plant. In
September of 2001, two of the farmers filed suit in Pennsylvania state court
alleging damage to their herds. Cabot removed the case to federal court. This
suit is in discovery. The Company believes that it has strong defenses against
plaintiffs' claims.
9
<PAGE>
In May 2000, the Direction Regionale de L'Industrie, de la Recherche et de
L'Environment ("DRIRE") and the Prefecture de la Seine-Maritime (the
"Prefecture") issued an order to United Chemical France S.A. ("UCF"), a French
subsidiary of Cabot, requiring UCF to undertake a simplified risk assessment
("SRA") of a former waste dump operated by UCF from the mid-1960s to the early
1980s in the Town of Notre Dame de Gravenchon. The SRA was completed at the end
of November 2000. It concluded that the site does not pose a major risk of
groundwater contamination, and that no further investigation is necessary. The
report has been submitted to the authorities in France but has not yet been
approved by them. When Cabot purchased UCF in 1985, the seller indemnified Cabot
for matters relating to events occurring prior to the sale, including
environmental matters. Cabot has notified the seller that Cabot believes that
the indemnification would cover costs related to the Final Order.
In January 1999, DRIRE notified Cabot France S.A., a French subsidiary of
Cabot, that the DRIRE was investigating groundwater pollution in the Montee des
Pins area where Cabot France S.A.'s carbon black plant in Berre l'Etang, France
is located. The DRIRE convened meetings of various industries in the area and
asked them to work together on a study of area groundwater conditions. Ten
companies, including Cabot France S.A., worked together to fund and undertake
the initial study requested by the DRIRE. Based on the results of that study, a
neighboring company, Shell Oil, appears to be responsible for the existing
groundwater contamination. Cabot and the other companies are expecting Shell Oil
to assume responsibility for remediating the groundwater conditions in the area.
Cabot, along with a number of other companies, is a PRP under the Superfund
law with respect to the King of Prussia Technical Corp. site in Winslow
Township, New Jersey. Work on site remediation was completed several years ago
except for ongoing operation and maintenance of groundwater treatment
facilities. Cabot and four other companies involved have agreed on the portions
of the costs to be borne by each company. In a December 22, 1998 letter to Cabot
and the other four companies, EPA demanded approximately $4.1 million in past
costs at the site. This dispute has been resolved through settlement
negotiations between the group of companies and EPA for $1.7 million. In
addition, in May, 2001 the NJDEP informed Cabot, along with the other named
parties, that NJDEP has incurred certain unreimbursed response costs at the
site. Cabot is awaiting the cost information from NJDEP.
On June 5, 1999, there was a break in the pipeline used to transport carbon
black feedstock from a nearby port to a Ravenna, Italy carbon black facility
owned by Cabot Italiana S.p.A., a wholly-owned subsidiary of Cabot. The break
was in a portion of the pipeline adjacent to a neighboring industrial facility.
As a result, a substantial amount of carbon black feedstock was released at the
neighboring facility. An expert for the public prosecutor in Ravenna has
completed an initial investigation of the facts of the spill. He has concluded
that the pipeline was damaged from drilling activity conducted by a third party,
and that Cabot is not responsible for causing the spill. In the interim, the
Company undertook emergency remediation efforts immediately following the spill.
Claims have been asserted against the Company by the owner of the facility where
the spill occurred and by the owners of a sewer system into which some of the
oil flowed. In addition, the Company has asserted a claim against the third
parties that caused the spill. The municipal environmental authorities issued an
order to the Company and the parties who damaged the pipeline ordering them to
undertake further activities to address conditions caused by the spill. The
Company and the other parties have challenged issuance of the order, and the
administrative courts in Italy are hearing the matter. The parties, including
the Company, have entered into an agreement to fund most of the activities
required by the administrative order, and work under that agreement is
proceeding. As of September 2001, the Company has spent in excess of $6 million
responding to the spill. The Company has notified its insurers about the spill
and has received reimbursement from them for a substantial portion of those
costs. At this point, the Company does not know the likely course that legal
proceedings will take, and does not have an estimate of the costs, if any, that
the Company will ultimately bear.
The Louisiana Department of Environmental Quality ("LADEQ") notified Cabot
in a January 5, 1995 letter of its potential liability with respect to the Great
National Oil/Ida Gas site in Ida, Louisiana (the "Ida Site") and requested
information regarding Cabot's activities related to the Ida Site or involvement
with the Hartsell Oil Company of Rodessa, Louisiana. Cabot responded on February
15, 1995 by indicating that during the 1982 to 1984 time period, Cabot's
Arcadia, Louisiana facility sold used oil to Hartsell for reprocessing.
10
<PAGE>
Cabot's Arcadia facility was sold to Haynes International, Inc. ("Haynes") in
December 1986. Cabot believes that it is entitled to indemnity from Haynes
pursuant to the acquisition agreement by which Haynes acquired the facility.
Haynes has denied Cabot's request for indemnification but also requested
additional information concerning this claim. In 1997, Cabot and eight other
parties received a demand letter from LADEQ for oversight costs incurred in
connection with the site from July 1989 to December 1996. Cabot paid its
pro-rata share of those costs in April 1997, which payment was an immaterial
amount. In May 2000, Cabot learned that the LADEQ intends to require the parties
it has previously notified, including the Company, to perform investigation and
cleanup activities at the site. The potential costs of those activities is
unknown at this time.
Cabot has received various requests for information and notifications that
it may be a PRP at several other Superfund sites.
As of September 30, 2001, approximately $30 million was reserved for
environmental matters by the Company. This amount represents the Company's
current best estimate of costs likely to be incurred based on its analysis of
the extent of cleanup required, alternative cleanup methods available, abilities
of other responsible parties to contribute and its interpretation of laws and
regulations applicable to each site.
OTHER PROCEEDINGS
The Company is a defendant in a patent infringement case, Rodel v. Cabot,
now pending in the federal court in Delaware, in which it is alleged that the
Company's W2000 slurries and possibly other slurries made for use in Chemical
Mechanical Planarization infringe, or contribute to the infringement of, a
patent owned by Rodel (the "Roberts Patent"). The Company has filed an answer
denying infringement and asserting that the Roberts Patent is not valid. The
Company has also filed a motion to dismiss on the grounds that the plaintiff is
not the owner of the Roberts Patent. Rodel requested re-examination of the
Roberts Patent by the US Patent & Trademark Office. This lawsuit was stayed
pending re-examination. Although the re-examination was completed in March,
2001, the stay had not been lifted. Cabot has moved for summary judgment on the
grounds of invalidity. Cabot continues to believe it has valid defenses and will
vigorously defend the action. The Company is a defendant in a second patent
infringement case, also entitled Rodel v. Cabot and pending in the federal court
in Delaware, in which it is alleged that certain experimental slurries made by
the Company for use in Chemical Mechanical Planarization infringe, or contribute
to the infringement of, one or two other patents owned by Rodel (the
"Brancaleoni Patents"). The Company filed an answer denying infringement and
asserting that the Brancaleoni Patents are not valid. The Company's motion to
dismiss on the grounds that the plaintiff is not the owner of the Brancaleoni
Patents was denied. A number of motions are pending before the court, including
the Company's summary judgment motion. Trial is expected to take place next
year. The Company continues to believe it has valid defenses and will vigorously
defend the action. Cabot Microelectronics Corporation, which was spun off from
the Company in 2000, has assumed the Company's liabilities in connection with
both of the foregoing cases.
Several additional lawsuits have been filed in 2001 in connection with
Cabot's discontinued beryllium operations. Cabot entered the beryllium industry
through an acquisition in 1978. It ceased manufacturing beryllium products at
one of the acquired facilities in 1980, and another portion of Cabot's former
beryllium business was sold to NGK Metals, Inc. in 1986. Two individuals who
have resided for many years in the immediate vicinity of Cabot's former
beryllium facility located in Reading, Pennsylvania brought suit in United
States District Court for the Eastern District of Pennsylvania against Cabot and
NGK for personal injury allegedly caused by beryllium particle emissions
produced at that facility over the course of many decades. These cases were
settled in 2001. Several additional individuals from the Reading area have also
filed suit on a similar basis. There are also approximately twenty other
beryllium product liability cases pending against Cabot in Tennessee,
Pennsylvania, Illinois, California, Colorado and Missouri. A number of cases in
Tennessee have been dismissed in 2001 as a result of findings by the court on
the validity of Cabot's defenses. The following class action suits have been
filed. (1) Individuals who reside within a 6-mile zone surrounding the Reading
facility have filed a purported class action in Pennsylvania state court seeking
the creation of a trust fund to pay for the medical monitoring of the
surrounding resident population. (2) A class action was filed in Pennsylvania
state court on behalf of all former employees of Cabot and NGK in Pennsylvania
also seeking medical monitoring. (3) A third class action, filed in the United
States District Court for the Eastern
11
<PAGE>
District of Pennsylvania, purported to assert claims on behalf of a nationwide
class of workers who have been employed by customers of various beryllium
manufacturers including Cabot; plaintiffs in this action seek the creation of a
"medical surveillance and screening program" for all class members. (4) Finally,
other individuals who reside within a 6-mile zone surrounding Cabot's former
facility in Hazleton, Pennsylvania have filed a purported class action in
Pennsylvania state court seeking the creation of a trust fund to pay for the
medical monitoring of the surrounding resident population. The class action
relating to the employees of customers described in (3) above has been
dismissed. The class action relating to the former employees of Cabot and NGK
described in (2) above will soon be dismissed. The Company believes it has valid
defenses to these actions and will assert them vigorously in the various venues
in which claims have been asserted. In addition, Cabot is indemnified by NGK in
connection with many of these matters. Moreover, recent federal legislation
creating a federally funded compensation scheme for beryllium workers injured or
otherwise requiring medical screening or testing may well affect certain of
these pending beryllium cases.
The Company has exposure to a safety respiratory products business that it
acquired in April 1990. It disposed of that business in July 1995. In connection
with its acquisition of the business, the Company agreed with the seller,
American Optical Corporation, and another former owner of the business to share
responsibility for legal costs, including settlements and judgments, in
connection with a number of lawsuits and claims relating to the respirators.
These lawsuits and claims typically involve allegations that the plaintiffs
suffer from asbestosis or silicosis as a result, in part, from respirators that
were negligently designed or labeled. The defendants in these lawsuits are often
numerous and include, in addition to respirator manufacturers, the plaintiffs'
employers and makers of asbestos and sand used in sand blasting. When the
Company disposed of the business in 1995 to Aearo Corporation ("Aearo"), it
agreed with Aearo that for an annual fee of $400,000 the Company would retain
responsibility for, and indemnify Aearo against, claims asserted after July 11,
1995 to the extent they are alleged to arise out of the use of respirators
before that date. Aearo can discontinue payment of the fee at any time, in which
case it will assume the responsibility for and indemnify the Company with
respect to these claims. Neither the Company, nor its past or present
subsidiaries, at any time manufactured asbestos or asbestos-containing products.
Moreover, not every person with exposure to asbestos giving rise to an asbestos
claim used a form of respiratory protection. At no time did the business for
which the Company is financially responsible for legal costs represent a
significant portion of the respirator market. In addition, as a result of the
sharing arrangements involving these lawsuits and claims, the Company has only a
portion of the liability in any given case. It is management's opinion, taking
into account currently available information, past experience, contractual
obligations and insurance coverage which may be applicable, that these suits and
claims should not result in final judgments or settlements that, in the
aggregate, would have a material effect on the Company's financial condition or
results of operations.
The Company has various other lawsuits, claims and contingent liabilities
arising in the ordinary course of its business. In the opinion of the Company,
although final disposition of all of its suits and claims may impact the
Company's financial statements in a particular period, they should not, in the
aggregate, have a material adverse effect on the Company's financial position.
(See Note O of the Notes to the Company's Consolidated Financial Statements,
which appears in Item 8 of this annual report on Form 10-K for the fiscal year
ended September 30, 2001.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below for each person who was an executive officer of Cabot at
the end of the 2001 fiscal year, is information, as of November 30, 2001,
regarding his or her age, position(s) with Cabot, the periods during which he or
she served as an officer and his or her business experience during at least the
past five years:
<Table>
<Caption>
NAME AGE OFFICES HELD/BUSINESS EXPERIENCE DATES HELD
- ---- --- -------------------------------- ----------
<S> <C> <C> <C>
John E. Anderson......... 61 Cabot Corporation
Vice President, Safety, Health
and Environmental Affairs March 2000 to present
Vice President and Director,
Global Quality March 1996 to March 2000
William T. Anderson...... 46 Cabot Corporation
Vice President March 2000 to November 2001
Controller September 1997 to November 2001
Acting Corporate Controller and
Assistant Controller February 1997 to September 1997
Assistant Controller July 1995 to February 1997
Kennett F. Burnes........ 58 Cabot Corporation
Chairman of the Board May 2001 to present
President February 1995 to present
Chief Executive Officer March 2001 to present
Chief Operating Officer March 1996 to March 2001
Executive Vice President October 1988 to February 1995
Ho-il Kim................ 43 Cabot Corporation
Vice President and General
Counsel July 2000 to present
Counsel August 1992 to July 2000
William P. Noglows....... 43 Cabot Corporation
Executive Vice President March 1998 to present
Vice President February 1994 to March 1998
Director of Global Manufacturing November 1997 to present
General Manager, Cab-O-Sil
Division November 1992 to November 1997
Thomas H. Odle........... 43 Cabot Corporation
Vice President March 1997 to present
General Manager, Cabot
Performance Materials October 1996 to March 1997
Roland R. Silverio....... 54 Cabot Corporation
Vice President May 1998 to present
Director of Human Resources/
Organizational Effectiveness May 1998 to November 2001
Director of Organizational
Development January 1998 to May 1998
October 1992 to October 1995
Manager of Training and
Development July 1990 to October 1992
Managing Partner, The Franklin
Group October 1995 to January 1998
</Table>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Cabot's Common Stock is listed for trading (symbol CBT) on the New York,
Boston, and Pacific stock exchanges and the Chicago Board Options Exchange. As
of September 30, 2001, there were approximately
13
<PAGE>
1,652 holders of record of Cabot's Common Stock. The price range in which the
stock has traded, as reported on the composite tape, and the quarterly cash
dividends for the past two years are shown below.
STOCK PRICE AND DIVIDEND DATA
<Table>
<Caption>
DECEMBER MARCH JUNE SEPTEMBER YEAR
-------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
FISCAL 2001
Cash dividends per share....................... $ 0.11 $ 0.11 $ 0.13 $ 0.13 $ 0.48
Price range of common stock:
High......................................... $26.75 $39.40 $38.74 $41.35 $41.35
Low.......................................... $18.56 $25.13 $31.40 $34.87 $18.56
Close........................................ $26.38 $31.50 $36.02 $39.90 $39.90
</Table>
<Table>
<Caption>
DECEMBER MARCH JUNE SEPTEMBER YEAR
-------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
FISCAL 2000
Cash dividends per share....................... $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.44
Price range of common stock:
High......................................... $13.31 $17.51 $17.27 $21.97 $21.97
Low.......................................... $10.55 $11.12 $14.39 $16.29 $10.55
Close........................................ $11.70 $17.51 $15.65 $18.19 $18.19
</Table>
On September 29, 2000, Cabot Corporation distributed to its shareholders in
the form of a stock dividend 0.28047 shares of Cabot Microelectronics for each
outstanding share of Cabot common stock. As a result, Cabot Corporation's stock
price was restated on October 2, 2000 from $31.69 to $18.19 by the New York
Stock Exchange to reflect the distribution of Cabot's ownership in Cabot
Microelectronics to Cabot's shareholders. Accordingly, the stock prices
presented above for fiscal 2000 are all restated on the same basis.
ITEM 6. SELECTED FINANCIAL DATA
Cabot Corporation Selected Financial Data:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Financial Highlights
Net sales and other operating
revenues............................. $1,670 $1,574 $1,405 $1,443 $1,450
------ ------ ------ ------ ------
Income from continuing operations....... $ 121 $ 108 $ 82 $ 116 $ 90
------ ------ ------ ------ ------
Long-term debt.......................... $ 419 $ 329 $ 419 $ 316 $ 286
Minority interest....................... 27 31 32 25 23
Stockholders' equity.................... 950 1,047 706 706 728
------ ------ ------ ------ ------
Total capitalization............ $1,396 $1,407 $1,157 $1,047 $1,037
------ ------ ------ ------ ------
Total assets.................... $1,919 $2,134 $1,842 $1,805 $1,826
------ ------ ------ ------ ------
Income from continuing operations per
common share:
Basic................................... $ 1.89 $ 1.65 $ 1.24 $ 1.72 $ 1.29
Diluted................................. $ 1.62 $ 1.46 $ 1.11 $ 1.53 $ 1.15
Cash dividends (declared and paid)...... $ 0.48 $ 0.44 $ 0.44 $ 0.42 $ 0.40
------ ------ ------ ------ ------
Weighted average common shares outstanding
in millions (diluted)................... 74 73 73 75 77
------ ------ ------ ------ ------
</Table>
14
<PAGE>
Information regarding the sale of Cabot's LNG business and the spin-off of
Cabot Microelectronics Corporation common stock can be found in Note C of the
Notes to the Company's Consolidated Financial Statements, which appears in Item
8 of this annual report on Form 10-K for the fiscal year ended September 30,
2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cabot Corporation and its subsidiaries (the "Company" or "Cabot") are
organized into three reportable segments: Chemical Businesses, Cabot Performance
Materials ("CPM"), and Cabot Specialty Fluids ("CSF"). The Chemical Businesses
are comprised of the carbon black, fumed metal oxides, and inkjet colorants
businesses.
The following discussion of results includes diluted earnings per share,
segment sales, and operating profit before taxes ("PBT"). Segment PBT is a
measure used by chief operating decision-makers to measure the Company's
consolidated operating results and assess segment performance. The following
discussion has been prepared on a basis consistent with segment reporting as
outlined in Note Q of the consolidated financial statements. (Refer to Note Q of
the consolidated financial statements for a definition of segment PBT and
additional segment information.)
The following analysis of financial condition and operating results should
be read in conjunction with Cabot's consolidated financial statements and
accompanying notes. Unless a calendar year is specified, all references to years
in this discussion are to Cabot's fiscal years ended September 30.
OVERVIEW
Cabot reported earnings per share of $1.66, $6.20, and $1.31 in 2001, 2000,
and 1999, respectively. In 2000, earnings included the net gain of $4.25 from
the sale of the Liquefied Natural Gas ("LNG") business. Earnings from continuing
operations totaled $1.62 in 2001 versus $1.46 in 2000. For 2001, the $1.62
amount included a net $0.20 charge for special items. For 2000, $1.46 in
earnings from continuing operations included a net $0.09 charge for special
items. Earnings from continuing operations totaled $1.11 in 1999 including a net
$0.14 charge from special items. Special items are detailed in the Company
Summary section of Management's Discussion and Analysis.
In 2001, weakened economic conditions resulted in lower demand in the
Chemical Businesses. In addition, higher feedstock costs, higher administrative
costs, and negative currency translations adversely impacted results in the
Chemical Businesses. The carbon black business experienced lower volumes across
all markets and in all regions with the exception of Asia Pacific. The fumed
metal oxides business also experienced reduced volumes in most of its markets.
Inkjet colorants realized increased volumes in 2001. The Performance Materials
Business experienced increased pricing and higher volumes due to new customer
contracts entered into in the first quarter of fiscal 2001. The Specialty Fluids
Business continued to gain market acceptance and experienced significantly
higher volumes and improved pricing.
In 2000, Cabot completed several initiatives focused on improving
shareholder value. These initiatives included the realization of approximately
$50 million in cost reductions, the initial public offering ("IPO") and
subsequent spin-off of Cabot Microelectronics and the sale of the LNG business
for $688 million, resulting in a net gain of $4.25 per share.
Cabot continues to pursue its strategy of managing costs and developing new
products and businesses based on its core competencies. Cabot is also committed
to achieving productivity improvements and further refining its business
portfolio in order to achieve its objectives of increasing earnings and stock
price performance.
RESULTS OF OPERATIONS
In fiscal year 2001, Cabot's operating results were comprised of three
segments: Chemical Businesses, Performance Materials, and Specialty Fluids. Due
to the disposition and spin-off of LNG and Cabot
15
<PAGE>
Microelectronics, respectively, earnings related to those segments are reported
as "discontinued" for the 2000 and 1999 fiscal years.
Cabot's sales for 2001, 2000 and 1999 were $1,670 million, $1,574 million
and $1,405 million, respectively. In 2001, improved pricing and increased
volumes in the Performance Materials Business offset lower volumes and negative
currency exchange effects in the Chemical Businesses resulting in a $96 million
improvement in sales versus 2000. Sales increased $169 million in 2000 as
compared to 1999 due to increased volumes and higher selling prices in the
Chemical Businesses somewhat offset by negative currency trends.
SEGMENT SALES
<Table>
<Caption>
2001 2000
---- ----
<S> <C> <C>
Chemical Businesses......................................... 79% 85%
Performance Materials....................................... 20% 14%
Specialty Fluids............................................ 1% 1%
</Table>
SALES BY GEOGRAPHIC REGION
<Table>
<Caption>
2001 2000
---- ----
<S> <C> <C>
North America............................................... 47% 43%
Europe...................................................... 29% 32%
Latin America............................................... 9% 10%
Asia Pacific................................................ 15% 15%
</Table>
CONTINUING OPERATIONS
CHEMICAL BUSINESSES: CARBON BLACK, FUMED METAL OXIDES, AND INKJET COLORANTS
<Table>
<Caption>
SEGMENT SALES SEGMENT PBT
------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
2001....................................................... $1,335 $121
2000....................................................... 1,360 180
1999....................................................... 1,224 163
</Table>
Sales for the Chemical Businesses were $1,335 million in 2001, compared
with $1,360 million in 2000 and $1,224 million in 1999. In 2001, sales decreased
2%, primarily as a result of lower volumes. PBT decreased 33%, from $180 million
in 2000 to $121 million in 2001, largely as the result of a strong US dollar and
lower volumes and, to a lesser extent, due to increased feedstock costs, higher
administrative and business development costs, somewhat offset by improved
pricing. Currency translation negatively impacted the businesses in every
quarter of fiscal 2001 versus fiscal 2000. In addition, feedstock costs
increased in each of the first three quarters of fiscal 2001 and stabilized in
the fourth fiscal quarter. In comparing 2000 to 1999, sales increased 11% and
PBT increased 10%. These improvements were attributable to higher volumes and
significant cost reductions, which amounted to approximately $50 million in
annual cost savings in fiscal 2000.
Carbon black sales, which comprise the majority of the Chemical Businesses
segment, were down 3% from last year due to lower volumes. Volume declined in
all regions with the exception of Asia Pacific, which remained flat. Weak
economic conditions, particularly in North America, resulted in a global carbon
black volume decrease of 6%. In addition to lower volumes, rising feedstock
costs and a stronger US dollar negatively impacted carbon black's profitability
resulting in an annual decrease in PBT of 20%.
In 2001, the fumed metal oxides business experienced decreased demand from
its traditional silicone rubber, composites, and adhesives markets, with overall
sales and volumes down 7% and 10%, respectively. In addition, increased energy
costs in North America, higher operating costs, and a stronger US dollar
resulted in a 60% decrease in the profitability of fumed metal oxides.
16
<PAGE>
The inkjet colorants business continues gaining market acceptance, growing
both sales and volumes in 2001. Sales and volumes increased 54% and 69% compared
to last year, albeit off of a relatively small base, due to higher penetration
in the inkjet colorants market. The inkjet colorants business operated at
approximately breakeven in 2001.
OUTLOOK FOR 2002
The Chemical Businesses have experienced weak order patterns for the past
three quarters, which will likely continue until the overall global economy
begins to recover. In an effort to mitigate the economic climate, the businesses
will continue to search for cost efficiencies and will focus on cost savings
initiatives.
Although growth in the inkjet printer market has slowed considerably, the
inkjet colorants business expects to see increases in sales and volumes as the
installed base of its customers' printers increases.
PERFORMANCE MATERIALS
<Table>
<Caption>
SEGMENT SALES SEGMENT PBT
------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
2001....................................................... $329 $78
2000....................................................... 215 38
1999....................................................... 187 30
</Table>
Performance Materials sales were $329 million in 2001, compared with $215
million in 2000 and $187 million in 1999. Although the electronic capacitor
market weakened significantly in the second half of the year, new customer
contracts entered into in the first fiscal quarter of 2001 resulted in a 14%
volume increase in fiscal 2001. In addition, average costs and average selling
prices increased 42% and 45%, respectively, in 2001 compared to 2000. As a
result, PBT increased 105% in 2001 versus 2000. In 2000, improvements in volumes
and prices offset increases in tantalum ore costs resulting in a 27% improvement
in profitability compared to 1999.
OUTLOOK FOR 2002
Demand for electronic products has been extremely weak for most of fiscal
2001 which has resulted in inventory build in the tantalum capacitor supply
chain. As a result of weak demand and high levels of inventory, the market for
tantalum remains weak. Cabot's long-term contracts with its customers call for
specified volumes and prices for the coming year; however, Cabot continues to
work with its customers to look for ways to help them in these difficult market
conditions while preserving the long-term value of the contracts. The Company is
uncertain of the magnitude of the impact, if any, of these discussions on
Cabot's future earnings. The electronics products marketplace and the
corresponding demand for tantalum capacitors is likely to remain weak until the
overall global electronics market begins to recover.
SPECIALTY FLUIDS
<Table>
<Caption>
SEGMENT SALES SEGMENT PBT
------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
2001....................................................... $27 $0
2000....................................................... 20 (3)
1999....................................................... 12 (3)
</Table>
Specialty Fluids sales in 2001 were $27 million versus $20 million in 2000
and $12 million in 1999. Higher sales resulted from a 14% increase in volumes
and improved pricing. In 2001, cesium formate was successfully used in 21 oil
and gas well completions and five drill-in applications bringing the total
number of jobs as of November 30, 2001 to 46. During 2001, initial production
flow tests were performed on three drill-in applications. Preliminary results
were favorable and indicated that cesium formate increased drilling speed,
minimized skin damage, and improved initial production flow rates by two to five
times. In 2000, increased
17
<PAGE>
demand resulted in the re-starting of cesium formate production that was
temporarily suspended in 1999 as a result of excess inventory and a downturn in
the oil industry.
OUTLOOK FOR 2002
Demand for the Specialty Fluids Business continues to grow. In 2002, the
Company expects to increase the number of drill-ins and completion applications
as the market develops for the use of cesium formate as the premium drilling
fluid for High-Temperature High-Pressure ("HTHP") wells. Furthermore, as the CSF
business continues to demonstrate cesium formate's ability to deliver superior
performance, the Company will search for ways to participate in the value
created in the drilling of oil and gas wells.
DISCONTINUED OPERATIONS
Cabot sold its LNG business and spun-off its Cabot Microelectronics
business in 2000. In 2001, Cabot received additional proceeds of $3 million, net
of tax, from the sale of its LNG business. Cabot reported earnings from
discontinued operations of $0.49 per diluted common share in 2000 compared to
$0.20 per diluted common share in 1999. Income from operations of discontinued
businesses, net of tax, for 2000 and 1999 was $36 million and $15 million,
respectively.
COMPANY SUMMARY
INCOME FROM CONTINUING OPERATIONS
Income before income taxes was $150 million in 2001, a 4% decline versus
$157 million in 2000. In 1999, income before income taxes was $113 million.
Income in 2001 was negatively impacted by special items, unfavorable currency
translations, and lower volumes in the Chemical Businesses. In 2001, special
items consisted of a $1 million insurance recovery and a $1 million recovery of
costs from one of the 2000 plant closings. Special items for 2001 also included
a $2 million charge from the discontinuance of a toll manufacturing agreement of
which $1 million remained accrued at September 30, 2001. In addition a $21
million charge was recorded related to the retirement of the Chief Executive
Officer and the resignation of the Chief Financial Officer. The charge consisted
of $13 million to accelerate the vesting of shares issued under Cabot's Long
Term Incentive Compensation Plan and $8 million of cash payments. In 2000,
special items consisted of the benefit of a $10 million insurance recovery, a $2
million charge to increase the environmental reserve, and an $18 million charge
to close two plants. Included in the $18 million charge were accruals of $2
million for severance and termination benefits for approximately 38 employees of
the Chemical and Performance Materials Businesses, $7 million for facility
closing costs, and a $9 million charge for the impairment of long-lived plant
assets. During 2001, $1 million of severance and termination benefits and $3
million of facility closing costs were paid. It was determined during fiscal
2001 that the recovery value of fixed assets was overvalued by $2 million and
the required facility closing costs would be $2 million less than originally
accrued. At September 30, 2001, $3 million remained in the accrual. During 1999,
Cabot began the implementation of initiatives to reduce costs and improve
operating efficiencies. In connection with these efforts, Cabot recorded a $26
million charge for capacity utilization and cost reduction initiatives. These
initiatives included $16 million for severance and termination benefits for
approximately 265 employees, of which $8 million and $7 million was paid out in
2000 and 1999, respectively. The remainder of the accrual was paid out during
2001. Also included in the charge was $10 million for the retirement of certain
long-lived plant assets, primarily at the Australian carbon black facility and
European plastics master batch operations. All special items are included in the
consolidated statements of income.
Gross margin improved by $23 million in 2001 due to higher pricing in all
the businesses and increased volumes in the CPM business. These improvements
were somewhat offset by higher raw material costs in all the businesses and a
strong US dollar. In 2000, gross margin decreased $4 million as compared to 1999
due to higher raw material costs.
Operating expenses include research and technical service, and selling and
administrative expenses. Research and technical service spending increased from
$43 million in 2000 to $48 million in 2001. The increase reflects increased
spending in CPM as well as in the inkjet colorants business and other developing
18
<PAGE>
businesses. In 2000, cost reductions in the carbon black and CPM businesses led
to a significant decrease in spending, from $58 million in 1999 to $43 million
in 2000. Selling and administrative expenses for 2001, 2000, and 1999 were $208
million, $173 million, and $186 million, respectively. The increase in 2001 is
primarily due to increased administrative costs including our Enterprise-wide
Resource Planning initiative and stock-based compensation. Selling and
administrative expenses decreased $13 million from 1999 to 2000 as a result of
the successful implementation of cost improvement initiatives in the Chemical
Businesses.
Interest expense from continuing operations was $1 million lower in 2001
compared to 2000 and $6 million lower in 2000 versus 1999 due to the repayment
of debt and lower interest rates. Interest expense was $32 million, $33 million,
$39 million in 2001, 2000, and 1999, respectively.
During fiscal 2001, Cabot completed a reorganization of its international
legal entity structure. One of the results of this reorganization was a decrease
in Cabot's overall effective income tax rate from 36% in fiscal 1999 and 2000 to
28% in fiscal 2001. It is anticipated that the effective income tax rate for
2002 will be approximately 28% to 30%. The underlying factors affecting Cabot's
overall effective tax rates are summarized in Note M of the consolidated
financial statements.
Cabot's share of earnings from equity affiliates increased from $13 million
in 1999 and 2000 to $20 million in 2001 as a result of increased earnings from
Showa Cabot Supermetals, a Japanese joint venture in the Performance Materials
Business.
NET INCOME
Net income was $124 million ($1.66 per diluted common share) in 2001
compared to $453 million ($6.20 per diluted common share) in 2000 and $97
million ($1.31 per diluted common share) in 1999.
The following table summarizes the impact of special items and the gain on
sale of equity securities, net of tax, on diluted earnings per common share:
<Table>
<Caption>
SPECIAL ITEMS & GAIN ON SALE 2001 2000 1999
- ---------------------------- ------ ------ ------
<S> <C> <C> <C>
Insurance recoveries........................................ $ 0.01 $ 0.08 --
Sale of K N Energy, Inc. stock.............................. -- -- $ 0.09
Cost reduction initiatives/programs......................... 0.01 (0.16) (0.23)
Retirement of Chief Executive Officer and resignation of
Chief Financial Officer................................... (0.20) -- --
Discontinuance of toll manufacturing agreement.............. (0.02) -- --
Environmental charge........................................ -- (0.01) --
------ ------ ------
Special Items & Gain on Sale per common share -- diluted.... $(0.20) $(0.09) $(0.14)
====== ====== ======
</Table>
Excluding special items and the gain on sale of equity securities, net
income from continuing operations would have been $136 million in 2001, $114
million in 2000 and $92 million in 1999.
RISK MANAGEMENT
MARKET RISK
Cabot's principal risk management objective is to identify and monitor its
exposure to interest rates, foreign currency rates, commodity prices and Cabot's
share price in order to assess the impact that changes in each could have on
future cash flow and earnings. Cabot manages these risks through normal
operating and financial activities and, when deemed appropriate, through the use
of derivative financial instruments. Gains or losses associated with financial
instruments are generally offset by the changes in value of the underlying
transaction. Market risk exposure to other financial instruments is not material
to earnings, cash flow, or fair values.
19
<PAGE>
Cabot's risk management policy prohibits entering into financial
instruments for speculative purposes. All instruments entered into by Cabot are
reviewed and approved by Cabot's Risk Management Committee, which is charged
with enforcing Cabot's risk management policy.
INTEREST RATES
Cabot's objective in managing its exposure to interest rate changes is to
maintain an appropriate balance of fixed and variable rate debt and to match
borrowing costs with the economics of Cabot's business cycles. Cabot uses
interest rate swaps to adjust fixed and variable rate debt positions. Cabot did
not enter into financial instruments to hedge interest rates during 2001 or
2000. Cabot settled its remaining interest rate swaps in January 2000. For 2000
and 1999, the gains or losses in interest income or expense associated with
interest rate swaps were immaterial.
In October of 2001, Cabot entered into interest rate swaps in an aggregate
notional amount of $97 million in order to balance its mix of fixed and variable
rate debt. The instruments mature on various dates through February 2007.
As of September 30, 2001, Cabot had $364 million in cash and short-term
investments. It is the Company's practice to invest excess cash in instruments
that will earn a high rate of return, consistent with the protection of
principal. Interest income earned may vary as a result of changes in interest
rates and average cash balances, which could fluctuate over time. Based on
current market rates of 2.7% and a cash balance invested in money market
securities of $320 million, a 10% change in interest rates could cause interest
income to change by approximately $1 million.
FOREIGN CURRENCY
Cabot's international operations are subject to certain risks, including
currency fluctuations and government actions. Operations in each country are
closely monitored so Cabot can respond to changing economic and political
environments and to fluctuations in foreign currencies. Accordingly, Cabot
utilizes short-term forward contracts to hedge receivables and payables
denominated in currencies other than its foreign entities' functional
currencies. In 2001, none of Cabot's forward contracts were designated as
hedging instruments under FAS No. 133. Cabot monitors its foreign exchange
exposures and adjusts its hedge position accordingly. Cabot's forward foreign
exchange contracts are denominated primarily in the EURO, Japanese yen, British
pound sterling, Canadian dollar, and Australian dollar.
SHARE REPURCHASES
As a regular practice, Cabot repurchases its shares in order to offset
dilution caused by issuing shares under its various employee stock plans. In
addition, Cabot may repurchase its shares as a preferred method of returning
excess cash to shareholders. From time to time, Cabot enters into derivative
instruments in its stock in order to fix the price of stock for delivery at a
future date. These agreements provide Cabot with the right to settle forward
contracts in cash or an equivalent value of Cabot Corporation common stock. In
2001 Cabot purchased 100,000 shares under share repurchase contracts at an
average price of $35 per share. At September 30, 2001 there were no open share
repurchase contracts.
COMMODITIES
Cabot is exposed to price fluctuations for certain commodities such as oil
feedstock and natural gas. When it owned the LNG business, from time to time,
Cabot entered into commodity futures contracts, commodity price swaps, and/or
option contracts to hedge a portion of firmly committed and anticipated
transactions against natural gas price fluctuations. In 2000, Cabot realized a
$1 million loss on futures contracts. In 1999, Cabot realized gains associated
with futures of $2 million and realized losses associated with options of $2
million. At September 30, 2001 and 2000, no contracts were outstanding.
20
<PAGE>
VALUE-AT-RISK
Cabot utilizes a Value-at-Risk ("VAR") model to determine the maximum
potential loss in the fair value of its foreign exchange, share repurchases and
commodity sensitive derivative financial instruments within a 95% confidence
interval. Cabot's computation is based on the interrelationships between
movements in interest rates, foreign currencies, share repurchases and
commodities. These interrelationships are determined by observing historical
interest rates, foreign currency, share price and commodity market changes over
corresponding periods. The assets and liabilities, firm commitments and
anticipated transactions, which are hedged by derivative financial instruments,
are excluded from the model. The VAR model estimates were made assuming normal
market conditions. There are various modeling techniques that can be used in the
VAR computation. Cabot's computations are based on a Monte Carlo simulation
method. The VAR Model is a risk analysis tool and does not purport to represent
actual gains or losses in fair value that will be incurred by Cabot. The VAR
Model estimated a maximum loss in market value of $2 million from October 1,
2001 through November 30, 2001 for derivative instruments held as of September
30, 2001.
At no time during 2001 did actual changes in market value exceed the VAR
amounts during the reporting period.
In 2000, the VAR Model estimated a maximum loss in market value of $1
million for derivative instruments held as of September 30, 2000.
CASH FLOW AND LIQUIDITY
Cash generated in 2001 from operating activities was $26 million, compared
with $264 million in 2000 and $208 million in 1999. The decrease in operating
cash in 2001 is largely attributable to a $178 million tax payment made in
fiscal 2001 which was related to the sale of the LNG business in fiscal 2000.
The change in 2000 versus 1999 was primarily due to improved working capital as
a result of an ongoing capital efficiency initiative.
Capital spending from continuing operations on property, plant and
equipment, and investments and acquisitions for 2001, 2000 and 1999 was $133
million, $108 million and $133 million, respectively. The 2000 and 1999 amounts
excluded capital spending from discontinued operations of $45 million and $39
million, respectively. The major components of the 2001, 2000 and 1999 capital
programs included new business expansion, normal plant operating capital
projects, capacity expansion in Cabot's CPM, fumed metal oxides and inkjet
businesses, and the development of new products. Capital expenditures for 2002
are expected to be approximately $200 million and include replacement projects,
plant expansions, and the completion of projects started in fiscal 2001.
Cash used in 2001 in financing activities was $176 million, compared with
$184 million in 2000 and $69 million in 1999. In 2001, the Company used cash for
the repurchase of its common stock which was partially offset by net proceeds
from long-term debt. In 2000, the Company used cash for the repayment of debt
and repurchase of common stock, partially offset by dividends received from
Cabot Microelectronics as a result of its IPO.
Cabot's ratio of total debt (including short-term debt, net of cash) to
capital increased from (29%) at September 30, 2000 to 9% at September 30, 2001,
primarily due to a lower cash balance in 2001, resulting from the repurchase of
Cabot common stock and income tax payments.
In November 2000, a Cabot subsidiary issued a 150 million EURO Note (fair
market value of $138 million at September 30, 2001) to a group of institutional
lenders. The loan bears interest at EURIBOR plus 0.70%, and is scheduled to
mature in November 2003.
On October 4, 2000, Cabot purchased $17 million of its Medium Term Notes
(MTNs) at par plus accrued interest. The 7.28% MTNs were issued on October 21,
1997, had a maturity date of October 21, 2027, and were subject to a put at par
in 2004.
21
<PAGE>
On September 8, 2000, Cabot's Board of Directors authorized the repurchase
of up to 10 million shares of Cabot's common stock, superseding prior
authorizations. Approximately 7 million shares have been purchased under this
new authorization as of October 31, 2001.
Cabot repurchased 7 million, 2 million, and 2 million shares of its common
stock for $218 million, $40 million, and $44 million in 2001, 2000, and 1999,
respectively.
In July 2001, Cabot replaced its revolving credit facility with a new
agreement. Under the new agreement, Cabot may, under certain conditions, borrow
up to $250 million at floating rates. The new facility is available through July
13, 2006. As of September 30, 2001, Cabot had no borrowings outstanding under
this arrangement. Management expects cash on hand, cash from operations and
present financing arrangements, including Cabot's unused line of credit and
shelf registration for debt securities, to be sufficient to meet Cabot's cash
requirements for the foreseeable future.
During 2001, 2000, and 1999 Cabot paid cash dividends of $0.48, $0.44, and
$0.44, respectively, per share of common stock. In November 2001, the Board of
Directors approved a $0.13 per share dividend on its common stock payable in the
first fiscal quarter of 2002.
Cabot is a defendant, or potentially responsible party, in various lawsuits
and environmental proceedings wherein substantial amounts are claimed or are at
issue. During the next few years, Cabot expects to spend a significant portion
of its $30 million environmental reserve in connection with remediation at
various environmental sites. These sites are primarily associated with
businesses divested in prior years.
NEW ACCOUNTING STANDARDS
In 2001, Cabot adopted the following new accounting pronouncement:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("FAS No. 141"), which requires that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001 and establishes specific criteria for the recognition of intangible
assets separately from goodwill, and requires that unallocated negative
goodwill be written off immediately as an extraordinary gain instead of
being deferred and amortized. Cabot will account for business combinations
after June 30, 2001 in accordance with the guidance in FAS No. 141.
Cabot is assessing the impact of the following new accounting
pronouncements:
In June 2001, the FASB issued Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142").
Under FAS No. 142 goodwill and indefinite lived intangible assets will no
longer be amortized. Instead, goodwill will be subject to annual impairment
tests performed under the guidance of the Statement. Additionally, the
amortization period of intangible assets with finite lives will no longer
be limited to forty years. Cabot has elected to implement FAS No. 142 on
October 1, 2001 and expects annual amortization expense to be reduced by $3
million.
The FASB issued Statement No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" ("FAS No. 143"), in
June 2001. The objective of FAS No. 143 is to establish an accounting
standard for the recognition and measurement of an asset retirement
obligation on certain long-lived assets. The retirement obligation must be
one that results from the acquisition, construction or normal operation of
a long-lived asset. FAS No. 143 requires the legal obligation associated
with the retirement of a tangible long-lived asset to be recognized at fair
value as a liability when incurred and the cost capitalized by increasing
the related long-lived asset. FAS No. 143 will be effective for Cabot on
October 1, 2002. Cabot is currently evaluating the effect of implementing
FAS No. 143.
In October 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("FAS No. 144"), which supersedes FAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of" and provisions of APB Opinion No. 30 "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently
22
<PAGE>
Occurring Events and Transactions" ("APB No. 30"), for the disposal of
segments of a business. The statement creates one accounting model, based
on the framework established in FAS No. 121, to be applied to all
long-lived assets including discontinued operations. FAS No. 144 will be
effective for Cabot on October 1, 2002. Cabot is currently evaluating the
effect of implementing FAS No. 144.
FORWARD-LOOKING INFORMATION
Included herein are statements relating to management's projections of
future profits, the possible achievement of Cabot's financial goals and
objectives, and management's expectations for Cabot's product development
program. Actual results may differ materially from the results anticipated in
the statements included herein due to a variety of factors, including but not
limited to the following: market supply and demand conditions, fluctuations in
currency exchange rates, changes in the rate of economic growth in the United
States and other major international economies, changes in regulatory
environments, changes in trade, monetary and fiscal policies throughout the
world, acts of war and terrorist activities, pending and future litigation, cost
of raw materials, patent rights of Cabot and others, demand for Cabot's
customers' products, and competitors' reactions to market conditions. Timely
commercialization of products under development by Cabot may be disrupted or
delayed by technical difficulties, market acceptance, or competitors' new
products, as well as difficulties in moving from the experimental stage to the
production stage. The risk management discussion and the estimated amounts
generated from the analyses are forward-looking statements of market risk,
assuming certain adverse market conditions occur. Actual results in the future
may differ materially from these projected results due to actual developments in
the global financial markets. The methods used by Cabot to assess and mitigate
risks should not be considered projections of future events or losses. The
Company undertakes no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required appears in the Risk Management portion of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the financial information which appears in Item 7 of this
annual report on Form 10-K for the fiscal year ended September 30, 2001, and is
incorporated herein by reference.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
<S> <C> <C>
(1) Consolidated Balance Sheets at September 30, 2001 and
2000........................................................ 25
(2) Consolidated Statements of Income for each of the three
fiscal years in the period ended September 30, 2001......... 27
(3) Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended September 30, 2001......... 28
(4) Consolidated Statements of Changes in Stockholders'
Equity...................................................... 29
(5) Notes to Consolidated Financial Statements.................. 31
(6) Report of Independent Accountants relating to the
Consolidated Financial Statements
listed above................................................ 60
</Table>
24
<PAGE>
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
<Table>
<Caption>
2001 2000
---------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 364 $ 638
Accounts and notes receivable, net of reserve for doubtful
accounts of $4 and $3.................................. 267 280
Inventories............................................... 285 232
Prepaid expenses and other current assets................. 33 23
Deferred income taxes..................................... 19 17
------- ------
Total current assets................................. 968 1,190
------- ------
Investments:
Equity.................................................... 76 74
Other..................................................... 29 27
------- ------
Total investments.................................... 105 101
------- ------
Property, plant and equipment............................... 1,856 1,794
Accumulated depreciation and amortization................... (1,049) (988)
------- ------
Net property, plant and equipment.................... 807 806
------- ------
Other assets:
Intangible assets, net of accumulated amortization of $13
and $11................................................ 21 21
Deferred income taxes..................................... 2 2
Other assets.............................................. 16 14
------- ------
Total other assets................................... 39 37
------- ------
Total assets................................................ $ 1,919 $2,134
======= ======
</Table>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
SEPTEMBER 30
<Table>
<Caption>
2001 2000
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks.................................... $ 13 $ 20
Current portion of long-term debt......................... 30 48
Accounts payable and accrued liabilities.................. 243 425
Deferred income taxes..................................... 5 1
------ ------
Total current liabilities.............................. 291 494
------ ------
Long-term debt.............................................. 419 329
Deferred income taxes....................................... 94 90
Other liabilities........................................... 138 143
Commitments and contingencies (Note O)
Minority interest........................................... 27 31
Stockholders' equity:
Preferred stock:
Authorized: 2,000,000 shares of $1 par value
Series A Junior Participating Preferred Stock Issued
and outstanding: none
Series B ESOP Convertible Preferred Stock 7.75%
Cumulative Issued: 75,336 shares, outstanding:
59,148 and 62,285 shares (aggregate redemption value
of $59 and $62)..................................... 75 75
Less cost of shares of preferred treasury stock........ (33) (24)
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued and outstanding: 62,633,252 and 67,700,060
shares.............................................. 63 68
Additional paid-in capital.................................. 9 111
Retained earnings........................................... 1,078 1,040
Unearned compensation....................................... (40) (39)
Deferred employee benefits.................................. (54) (56)
Notes receivable for restricted stock....................... (23) (27)
Accumulated other comprehensive loss........................ (125) (101)
------ ------
Total stockholders' equity........................... 950 1,047
------ ------
Total liabilities and stockholders' equity.................. $1,919 $2,134
====== ======
</Table>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Net sales and other operating revenues.................... $1,670 $1,574 $1,405
Interest and dividend income.............................. 28 6 4
------ ------ ------
Total revenues......................................... 1,698 1,580 1,409
------ ------ ------
Costs and expenses:
Cost of sales............................................. 1,237 1,164 991
Selling and administrative expenses....................... 208 173 186
Research and technical service............................ 48 43 58
Interest expense.......................................... 32 33 39
Special items............................................. 21 10 26
Gain on sale of equity securities......................... -- -- (10)
Other charges, net........................................ 2 -- 6
------ ------ ------
Total costs and expenses............................... 1,548 1,423 1,296
------ ------ ------
Income before income taxes.................................. 150 157 113
Provision for income taxes.................................. (42) (57) (41)
Equity in net income of affiliated companies................ 20 13 13
Minority interest in net income............................. (7) (5) (3)
------ ------ ------
Income from continuing operations...................... 121 108 82
Discontinued Operations
Income from operations of discontinued businesses, net of
income taxes........................................... -- 36 15
Gain on sale of business, net of income taxes............. 3 309 --
------ ------ ------
Net Income............................................. 124 453 97
------ ------ ------
Dividends on preferred stock, net of tax benefit of $2, $2
and $2.................................................... (3) (3) (3)
------ ------ ------
Income applicable to common shares..................... $ 121 $ 450 $ 94
====== ====== ======
Weighted-average common shares outstanding, in millions:
Basic..................................................... 62 64 64
====== ====== ======
Diluted................................................... 74 73 73
====== ====== ======
Income per common share:
Basic:
Continuing operations.................................. $ 1.89 $ 1.65 $ 1.24
Discontinued Operations:
Income from operations of discontinued businesses.... -- 0.56 0.23
Gain on sale of business............................. 0.05 4.83 --
------ ------ ------
Net Income........................................ $ 1.94 $ 7.04 $ 1.47
====== ====== ======
Diluted:
Continuing operations.................................. $ 1.62 $ 1.46 $ 1.11
Discontinued Operations:
Income from operations of discontinued businesses.... -- 0.49 0.20
Gain on sale of business............................. 0.04 4.25 --
------ ------ ------
Net Income........................................ $ 1.66 $ 6.20 $ 1.31
====== ====== ======
</Table>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30
<Table>
<Caption>
2001 2000 1999
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $ 124 $ 453 $ 97
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 115 129 125
Deferred tax expense (benefit)......................... 6 20 (3)
Equity in net income of affiliated companies, net of
dividends received.................................... (9) (5) 6
Special items.......................................... 14 20 19
Gain on sale of business, net of income taxes.......... (3) (309) --
Gain on sale of equity securities...................... -- -- (10)
Non-cash compensation.................................. 22 17 12
Other, net............................................. 5 -- --
Changes in assets and liabilities, net of the effect of
the consolidation of
equity affiliates:
Decrease (increase) in accounts and notes
receivable.......................................... 13 (73) (38)
Decrease (increase) in inventories................... (55) 1 (7)
Increase (decrease) in accounts payable and accrued
liabilities......................................... (31) 48 (2)
Decrease in income taxes payable..................... (175) (10) (14)
Increase (decrease) in other liabilities............. (6) (22) 32
Other, net........................................... 6 (5) (9)
----- ----- -----
Cash provided by operating activities............. 26 264 208
----- ----- -----
Cash Flows from Investing Activities
Additions to property, plant and equipment................ (122) (137) (166)
Proceeds from sales of property, plant and equipment...... 4 7 1
Purchases of equity securities............................ (5) (2) --
Proceeds from sales of equity securities.................. -- -- 20
Investments and acquisitions, excluding cash acquired..... (6) (14) (6)
Proceeds from sale of business............................ 5 688 --
Cash retained by discontinued operations.................. -- (14) --
Cash from consolidation of equity affiliates and other.... -- -- 8
----- ----- -----
Cash provided by (used in) investing activities... (124) 528 (143)
----- ----- -----
Cash Flows from Financing Activities
Proceeds from long-term debt.............................. 129 17 103
Repayments of long-term debt.............................. (63) (62) (11)
Decrease in short-term debt, net.......................... (7) (165) (77)
Proceeds from initial public offering of Cabot
Microelectronics Corporation........................... -- 83 --
Purchases of preferred and common stock................... (229) (47) (46)
Sales and issuances of preferred and common stock......... 13 15 11
Cash dividends paid to stockholders....................... (34) (32) (32)
Purchase of notes receivable for restricted stock......... -- -- (18)
Employee loan repayments.................................. 15 7 1
----- ----- -----
Cash used in financing activities................. (176) (184) (69)
----- ----- -----
Effect of exchange rate changes on cash..................... -- (5) (1)
----- ----- -----
Increase (decrease) in cash and cash equivalents............ (274) 603 (5)
Cash and cash equivalents at beginning of year.............. 638 35 40
----- ----- -----
Cash and cash equivalents at end of year.................... $ 364 $ 638 $ 35
===== ===== =====
</Table>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30
<Table>
<Caption>
PREFERRED
STOCK, ACCUMULATED
NET OF ADDITIONAL OTHER DEFERRED
TREASURY COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED EMPLOYEE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) COMPENSATION BENEFITS
--------- ------ ---------- -------- ------------- ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Balance at September 30, 1998..... $61 $67 $ 5 $ 672 $ (13) $(26) $(60)
--- --- ---- ------ ----- ---- ----
Net income........................ 97
Foreign currency translation
adjustments..................... (17)
Change in unrealized gain on
available-for-sale securities... (14)
Total comprehensive income........
Common dividends paid............. (29)
Issuance of stock under employee
compensation plans, net of tax
benefit of $5................... 2 39 (16)
Purchase and retirement of common
stock........................... (2) (39) (3)
Purchase of treasury
stock -- preferred.............. (3)
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........ (3)
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan................. 1
Amortization of unearned
compensation.................... 12
Notes receivable -- loans
purchased, payments, and
forfeitures.....................
--- --- ---- ------ ----- ---- ----
Balance at September 30, 1999..... $58 $67 $ 5 $ 734 $ (44) $(30) $(59)
--- --- ---- ------ ----- ---- ----
2000
Net income........................ 453
Foreign currency translation
adjustments..................... (58)
Change in unrealized gain on
available-for-sale securities... 1
Total comprehensive income........
Common dividends paid............. (30)
Issuance of stock under employee
compensation plans, net of tax
benefit of $4................... 3 51 (26)
Purchase and retirement of common
stock........................... (2) (15) (23)
Purchase of treasury
stock -- preferred.............. (7)
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........ (3)
<Caption>
NOTES
RECEIVABLE FOR TOTAL TOTAL
RESTRICTED STOCKHOLDERS' COMPREHENSIVE
STOCK EQUITY INCOME
-------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1999
Balance at September 30, 1998..... $ -- $ 706
---- ------
Net income........................ $ 97
Foreign currency translation
adjustments..................... (17)
Change in unrealized gain on
available-for-sale securities... (14)
----
Total comprehensive income........ $ 66
====
Common dividends paid.............
Issuance of stock under employee
compensation plans, net of tax
benefit of $5................... (8)
Purchase and retirement of common
stock...........................
Purchase of treasury
stock -- preferred..............
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan.................
Amortization of unearned
compensation....................
Notes receivable -- loans
purchased, payments, and
forfeitures..................... (17)
---- ------
Balance at September 30, 1999..... $(25) $ 706
---- ------
2000
Net income........................ $453
Foreign currency translation
adjustments..................... (58)
Change in unrealized gain on
available-for-sale securities... 1
----
Total comprehensive income........ $396
====
Common dividends paid.............
Issuance of stock under employee
compensation plans, net of tax
benefit of $4................... (10)
Purchase and retirement of common
stock...........................
Purchase of treasury
stock -- preferred..............
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........
</Table>
29
<PAGE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
YEARS ENDED SEPTEMBER 30
<Table>
<Caption>
PREFERRED
STOCK, ACCUMULATED
NET OF ADDITIONAL OTHER DEFERRED
TREASURY COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED EMPLOYEE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) COMPENSATION BENEFITS
--------- ------ ---------- -------- ------------- ------------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan................. 3
Amortization of unearned
compensation.................... 17
Notes receivable -- payments and
forfeitures.....................
Proceeds from Initial Public
Offering -- Cabot
Microelectronics Corporation.... 83
Minority interest recorded related
to Cabot Microelectronics
Corporation..................... (13)
Cabot Microelectronics
Corporation -- dividend......... (91)
--- --- ---- ------ ----- ---- ----
Balance at September 30, 2000..... $51 $68 $111 $1,040 $(101) $(39) $(56)
--- --- ---- ------ ----- ---- ----
2001
Net income........................ 124
Foreign currency translation
adjustments..................... (26)
Change in unrealized gain on
available-for-sale securities... 2
Total comprehensive income........
Common dividends paid............. (31)
Issuance of stock under employee
compensation plans, net of tax
benefit of $4................... 2 49 (27)
Purchase and retirement of common
stock........................... (7) (161) (52)
Purchase of treasury
stock -- preferred.............. (9)
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........ (3)
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan................. 2
Amortization of unearned
compensation.................... 10 26
Notes receivable -- payments, and
forfeitures.....................
--- --- ---- ------ ----- ---- ----
Balance at September 30, 2001..... $42 $63 $ 9 $1,078 $(125) $(40) $(54)
--- --- ---- ------ ----- ---- ----
<Caption>
NOTES
RECEIVABLE FOR TOTAL TOTAL
RESTRICTED STOCKHOLDERS' COMPREHENSIVE
STOCK EQUITY INCOME
-------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan.................
Amortization of unearned
compensation....................
Notes receivable -- payments and
forfeitures..................... 8
Proceeds from Initial Public
Offering -- Cabot
Microelectronics Corporation....
Minority interest recorded related
to Cabot Microelectronics
Corporation.....................
Cabot Microelectronics
Corporation -- dividend.........
---- ------
Balance at September 30, 2000..... $(27) $1,047
---- ------
2001
Net income........................ $124
Foreign currency translation
adjustments..................... (26)
Change in unrealized gain on
available-for-sale securities... 2
----
Total comprehensive income........ $100
====
Common dividends paid.............
Issuance of stock under employee
compensation plans, net of tax
benefit of $4................... (11)
Purchase and retirement of common
stock...........................
Purchase of treasury
stock -- preferred..............
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax benefit of $2........
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan.................
Amortization of unearned
compensation....................
Notes receivable -- payments, and
forfeitures..................... 15
---- ------
Balance at September 30, 2001..... $(23) $ 950
---- ------
</Table>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
NOTE A SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. The significant accounting policies of
Cabot Corporation ("Cabot") are described below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cabot and
majority-owned and controlled U.S. and non-U.S. subsidiaries. Investments in 20%
to 50% owned affiliates are accounted for using the equity method. Intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with a maturity of
three months or less at date of acquisition. Cash overdrafts are included with
notes payable to banks on the consolidated balance sheet.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of most
U.S. inventories is determined using the last-in, first-out ("LIFO") method. The
cost of other U.S. and all non-U.S. inventories is determined using the average
cost method or the first-in, first-out ("FIFO") method.
INVESTMENTS
Investments include investments in equity affiliates, investments in equity
securities, and investments accounted for under the cost method. Investments
held under the cost method are subject to impairment. Investments in equity
securities are classified as available-for-sale and are recorded at their fair
market values. Accordingly, any unrealized holding gains or losses, net of
taxes, are excluded from income and recognized as a separate component of other
comprehensive income within stockholders' equity. For all investment securities,
unrealized losses that are other than temporary are recognized in net income.
The fair value of equity securities is determined based on market prices at the
balance sheet dates. The cost of equity securities sold is determined by the
specific identification method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment is generally calculated on the straight-line
method for financial reporting purposes. The depreciable lives for buildings,
machinery and equipment, and other fixed assets are 20 to 25 years, 10 to 20
years, and 3 to 20 years, respectively. The cost and accumulated depreciation
for property, plant and equipment sold, retired, or otherwise disposed of are
relieved from the accounts, and resulting gains or losses are reflected in
income.
Cabot capitalizes internal use software costs in accordance with Statement
of Position No. 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use."
INTANGIBLE ASSETS
Intangible assets are comprised of the cost of business acquisitions in
excess of the fair value assigned to the net tangible assets acquired and the
costs of technology, licenses, and patents purchased in business acquisitions.
The excess of cost over the fair value of net assets acquired is amortized on
the straight-line basis over the estimated useful life up to 40 years. Other
intangibles are amortized over their estimated useful lives. Included in other
charges is amortization expense of $4 million for 2001, 2000 and 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
Cabot reviews long-lived assets for impairment whenever events or changes
in business circumstances indicate that the carrying amount of the assets may
not be fully recoverable. Each impairment test is based on
31
<PAGE>
comparison of undiscounted cash flows to the recorded value of the asset. If an
impairment is indicated, the asset is written down to its fair value.
FOREIGN CURRENCY TRANSLATION
The functional currency of the majority of Cabot's foreign subsidiaries is
the local currency. Substantially all assets and liabilities of foreign
operations are translated into U.S. dollars at exchange rates in effect at the
balance sheet dates. Unrealized currency translation adjustments are accumulated
as a separate component of other comprehensive income within stockholders'
equity. Income and expense items are translated at average exchange rates during
the year. Foreign currency gains and losses arising from transactions are
reflected in net income. Included in other charges for 2001, 2000 and 1999 are
net foreign exchange losses of $3 million, $1 million and $1 million,
respectively.
FINANCIAL INSTRUMENTS
Derivative financial instruments are used by Cabot to manage some of its
foreign currency exposures. Cabot may also use financial instruments to manage
other exposures, such as commodity prices, share repurchases and interest rates.
Cabot does not enter into financial instruments for speculative purposes.
Derivative financial instruments are accounted for in accordance with Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities", and are measured at fair value and recorded on the
balance sheet. Through fiscal 2001, Cabot did not enter into financial
instruments which received hedge accounting treatment under FAS No. 133. If the
derivative instrument is not designated as a hedge, the gain or loss from
changes in the fair value is recognized in earnings in the period of change.
REVENUE RECOGNITION
The Company derives its revenues through the sale of chemical products,
performance materials and specialty fluids products. Cabot recognizes revenue
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable and collectibility is probable. Provision
is made at the time the related revenue is recognized for estimated rebates and
product returns which may occur.
The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101") in December 1999, which establishes criteria
which must be satisfied before revenue is realized or realizable and earned.
During fiscal 2001, the Company reviewed the provisions of SAB 101 and concluded
that its revenue recognition policies were in compliance with the standard.
Accordingly, there were no transition adjustments required in applying the
provisions of SAB 101.
In addition, the Emerging Issues Task Force issued EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs." Shipping and handling charges related
to sales transactions are recorded as sales revenue when billed to customers or
included in the sale price. Shipping and handling costs that were previously
netted against revenues are now included in cost of sales. Shipping and handling
costs reclassified from revenue to cost of sales to conform to the 2001
presentation in fiscal 2000 and 1999 amounted to $57 million and $51 million,
respectively.
INCOME TAXES
Deferred income taxes are determined based on the estimated future tax
effects of differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities. Provisions are made for the U.S.
income tax liability and additional non-U.S. taxes on the undistributed earnings
of non-U.S. subsidiaries, except for amounts Cabot has designated to be
indefinitely reinvested.
EQUITY INCENTIVE PLANS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"),
Cabot has elected to account for stock-based compensation plans consistent with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
32
<PAGE>
Employees" ("APB No. 25"), and related interpretations in accounting. Cabot
discloses the summary of pro forma effects to reported net income and earnings
per share, as if Cabot had elected to recognize compensation cost based on the
fair value of the options granted at grant date, as prescribed by FAS No. 123.
Under Cabot's Equity Incentive Plans, common stock may be granted at a
discount to certain key employees. Generally, restricted stock awards cannot be
sold or otherwise encumbered during the three years following the grant. Upon
issuance of stock under the plan, unearned compensation equivalent to the
difference between the market value on the date of the grant and the discounted
price is charged to a separate component of stockholders' equity and
subsequently amortized over the vesting period.
COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income (Loss), which is disclosed in the
stockholders' equity section of the consolidated balance sheet, includes
unrealized gains or losses on available-for-sale securities, translation
adjustments on investments in foreign subsidiaries, and translation adjustments
on foreign securities.
ENVIRONMENTAL CLEANUP MATTERS
Cabot expenses environmental costs related to existing conditions resulting
from past or current operations and from which no current or future benefit is
discernible. Cabot determines its liability on a site-by-site basis and records
a liability at the time when it is probable and can be reasonably estimated.
Cabot's estimated liability is reduced to reflect the anticipated participation
of other potentially responsible parties in those instances where it is probable
that such parties are legally responsible and financially capable of paying
their respective shares of the relevant costs. The estimated liability of Cabot
is not reduced for possible recoveries from insurance carriers.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles, requires management to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities, at the date
of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from those
estimates.
RECLASSIFICATION
Certain amounts in 2000 and 1999 have been reclassified to conform to the
2001 presentation. These reclassifications had no affect on operating income.
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, Cabot adopted the following new accounting pronouncements:
- Effective October 1, 2000, Cabot adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS No. 133"), as amended. The adoption of FAS No.
133 did not have an impact on Cabot's financial position or results of
operations. FAS No. 133 establishes accounting and reporting standards
requiring that all derivative instruments, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet
as either assets or liabilities measured at fair value. FAS No. 133
requires that changes in the derivative instrument's fair value be
recognized currently in earnings, unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative instrument's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
33
<PAGE>
- Cabot adopted Emerging Issues Task Force ("EITF") No. 00-10 "Accounting
for Shipping and Handling Fees and Costs", as of October 1, 2000. Amounts
billed as shipping and handling are required to be recorded as revenue,
however a company can adopt a policy of including shipping and handling
costs in cost of sales. Following the guidance of EITF No. 00-10, Cabot
has reclassified shipping and handling costs to cost of sales for all
periods presented. As a result, reported net sales have increased, with a
corresponding increase in cost of sales.
- In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. In June 2000, the SEC released SAB 101B,
which postponed the effective date of SAB 101 to the fourth quarter of
fiscal years beginning after December 15, 1999. We have reviewed our
revenue recognition policies and have found them to be in compliance with
SAB 101 in all material respects.
- In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("FAS No. 141"), which requires that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001, establishes specific criteria for the recognition of intangible
assets separately from goodwill, and requires that unallocated negative
goodwill be written off immediately as an extraordinary gain instead of
being deferred and amortized. Cabot will account for business
combinations after June 30, 2001 in accordance with the guidance in FAS
No. 141.
In addition, Cabot is assessing the impact of the following standards:
- In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). Under
FAS No. 142, goodwill and indefinite lived intangible assets will no
longer be amortized. Instead, goodwill and indefinite lived intangible
assets will be subject to annual impairment tests performed under the
guidance of the statement. Additionally, the amortization period of
intangible assets with finite lives will no longer be limited to forty
years. Cabot has elected to implement FAS No. 142 on October 1, 2001 and
expects annual amortization expense to be reduced by $3 million.
- The FASB issued Statement No. 143, "Accounting for Obligations Associated
with the Retirement of Long-Lived Assets" ("FAS No. 143"), in June 2001.
The objective of FAS No. 143 is to establish an accounting standard for
the recognition and measurement of an asset retirement obligation on
certain long-lived assets. The retirement obligation must be one that
results from the acquisition, construction or normal operation of a
long-lived asset. FAS No. 143 requires the legal obligation associated
with the retirement of a tangible long-lived asset to be recognized at
fair value as a liability when incurred, and the cost to be capitalized
by increasing the carrying amount of the related long-lived asset. FAS
No. 143 will be effective for Cabot on October 1, 2002. Cabot is
currently evaluating the effect of implementing FAS No. 143.
- In October 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("FAS No. 144"), which supersedes FAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" and provisions of APB Opinion No. 30 "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" ("APB No. 30"), for the disposal of
segments of a business. The statement creates one accounting model, based
on the framework established in FAS No. 121, to be applied to all
long-lived assets including discontinued operations. FAS No. 144 will be
effective for Cabot on October 1, 2002. Cabot is currently evaluating the
effect of implementing FAS No. 144.
34
<PAGE>
NOTE B SPECIAL ITEMS AND ACQUISITIONS
SPECIAL ITEMS
Special items for 2001 include the benefits of a $1 million insurance
recovery and a $1 million recovery of costs from one of the 2000 plant closings.
Special charges for 2001 include a $2 million charge from the discontinuance of
a toll manufacturing agreement of which $1 million remained accrued at September
30, 2001. In addition a $21 million charge was recorded related to the
retirement of the Chief Executive Officer and the resignation of the Chief
Financial Officer. The charge consisted of $13 million to accelerate the vesting
of shares issued under Cabot's Long Term Incentive Compensation Plan and $8
million of cash payments. These items are reported as special in the
consolidated statements of income.
Special items for fiscal 2000 included the benefit of a $10 million
insurance recovery, a $2 million charge to increase the environmental reserve,
and an $18 million charge to close two plants. Included in the $18 million
charge were accruals of $2 million for severance and termination benefits for
approximately 38 employees of the Chemical and Performance Materials Businesses,
$7 million for facility closing costs, and a $9 million charge for the
impairment of long-lived plant assets. These items are reported as special in
the consolidated statements of income. During 2001, $1 million of severance and
termination benefits and $3 million of facility closing costs were paid. It was
determined during fiscal 2001 that the recovery value of fixed assets was
overvalued by $2 million and the required facility closing costs would be $2
million less than originally accrued. At September 30, 2001, $3 million remains
in the accrual.
During 1999, Cabot began implementation of initiatives to reduce costs and
improve operating efficiencies. In connection with these efforts, Cabot recorded
a $26 million charge for capacity utilization and cost reduction initiatives.
These initiatives included $16 million for severance and termination benefits
for approximately 265 employees, of which $8 million and $7 million was paid out
in 2000 and 1999, respectively. The remainder of the accrual was paid out during
2001. Also included in the charge was $10 million for the retirement of certain
long-lived plant assets, primarily at the Australian carbon black facility and
European plastics master batch operations. These items are reported as special
in the consolidated statements of income.
ACQUISITIONS
On March 16, 2001, Cabot announced an open offer for approximately 4
million shares of Cabot India Limited, at 100 Rupees per share. Cabot India
Limited is a majority owned subsidiary of Cabot Corporation and its shares are
traded on Indian stock exchanges. The tender offer was for the 40% ownership of
Cabot India Limited held by minority interest shareholders. The tender offer
closed on June 16, 2001 and the share transfer procedures occurred in July 2001.
Approximately 3 million of the outstanding shares were acquired for $6 million,
raising Cabot's total ownership to approximately 92% as of September 30, 2001.
Cabot made a follow-on offer at the same price for the remaining shares. The
follow on offer closed in October 2001, with Cabot acquiring an additional 2%
ownership. The excess of the purchase price over the fair value of the minority
interest acquired of approximately $2 million was recorded as goodwill.
In March 2001, Cabot exercised an option to purchase 1 million shares of
Angus & Ross Plc common stock. In May 2001, Cabot purchased an additional 4
million shares of Angus & Ross Plc common stock. The total purchase price of the
5 million shares was $1 million. The purchase of the additional 4 million shares
increased Cabot's ownership in Angus & Ross Plc to approximately 21%. The
investment is accounted for under the equity method. As part of the agreement,
Cabot received an option to purchase an additional 5 million shares of common
stock. The option has not yet been exercised.
On March 17, 2000, Cabot signed a preliminary agreement to acquire the
remaining interest in a joint venture for approximately $14 million. The
acquisition closed in the third quarter of fiscal 2000 and was accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values. The
excess of the purchase price over fair value of net assets acquired of
approximately $7 million was recorded as goodwill and is being amortized over 10
years.
35
<PAGE>
NOTE C DISCONTINUED OPERATIONS
On September 19, 2000, Cabot completed a transaction to sell its Liquefied
Natural Gas (LNG) segment for $688 million in cash. The sale included Cabot's
LNG terminal in Everett, Massachusetts, its LNG tanker, the Matthew, and its
equity interest in the Atlantic LNG liquefaction plant in Trinidad. The gain on
the sale of the LNG segment was approximately $309 million, net of taxes of $178
million.
In February 2001, Cabot received additional cash proceeds of $5 million
from the sale. The receipt, net of taxes, is classified as a gain on sale of
business in the consolidated statement of income.
On April 4, 2000, Cabot Microelectronics Corporation, then a subsidiary of
Cabot, sold 4.6 million shares of its common stock in an initial public offering
(IPO). The 4.6 million shares represented approximately 19.5% of Cabot
Microelectronics. The net proceeds from the IPO were approximately $83 million.
Cabot received an aggregate of approximately $81 million in dividends from Cabot
Microelectronics. On July 25, 2000, a committee of Cabot's Board of Directors
voted to spin off its remaining 80.5% equity interest in Cabot Microelectronics
by distributing a special dividend of its remaining interest in Cabot
Microelectronics to its common stockholders of record as of the close of regular
trading on the New York Stock Exchange on September 13, 2000. The tax-free
distribution took place on September 29, 2000.
For fiscal 2000 and 1999 the operating results of the LNG and Cabot
Microelectronics segments have been segregated from continuing operations and
reported as a separate item on the consolidated statements of income. Interest
expense was allocated to discontinued operations proportionally based upon total
assets, in accordance with APB No. 30. Condensed operating results of the
discontinued operations are as follows:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2000 1999
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales and other operating revenues...................... $579 $361
Income before income taxes and minority interest............ 62 23
Provision for income taxes.................................. 22 8
Minority interests.......................................... 4 --
Income from operations, net of income taxes................. 36 15
</Table>
NOTE D INVENTORIES
Inventories, net of reserves, were as follows:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2001 2000
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Raw materials............................................... $ 76 $ 73
Work in process............................................. 70 45
Finished goods.............................................. 106 83
Other....................................................... 33 31
---- ----
Total.................................................. $285 $232
==== ====
</Table>
Inventories valued under the LIFO method comprised approximately 26% and
25% of 2001 and 2000 total inventory, respectively. At September 30, 2001 and
2000, the estimated current cost of these inventories exceeded their stated
valuation determined on the LIFO basis by approximately $94 million and $58
million, respectively. There were no significant liquidations of LIFO
inventories in 2001 and 1999. In 2000, LIFO inventory quantities were reduced,
which resulted in a liquidation of LIFO inventory layers carried at lower costs
which prevailed in prior years. The effect of the 2000 liquidation was to
decrease cost of sales by approximately $5 million and to increase net earnings
by $3 million. Other inventory is comprised of spare parts and supplies.
36
<PAGE>
NOTE E INVESTMENTS
At September 30, 2001 and 2000, investments in common stock accounted for
using the equity method amounted to $76 million and $74 million, respectively.
In addition to joint ventures in the Chemical Businesses segment, Cabot's equity
investments include Showa Cabot Supermetals, a 50% joint venture in the
Performance Materials segment. Dividends received from equity affiliates were
$11 million in 2001, $8 million in 2000, and $19 million in 1999.
The results of operations and financial position of Showa Cabot Supermetals
and Cabot's other equity-basis affiliates are summarized below:
EQUITY-BASED AFFILIATES
<Table>
<Caption>
SHOWA CABOT OTHER EQUITY
SUPERMETALS AFFILIATES
------------------ ------------------
SEPTEMBER 30
---------------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Condensed Income Statement Information:
Net sales..................................... $209 $175 $133 $475 $511 $489
Gross profit.................................. 64 39 32 173 196 196
Net income.................................... 30 15 10 18 23 29
Condensed Balance Sheet Information:
Current assets................................ $147 $142 $171 $179
Non-current assets............................ 53 28 337 356
Current liabilities........................... 77 78 153 193
Non-current liabilities....................... 66 38 245 238
Net assets.................................... 57 54 110 104
</Table>
Other investments of $29 million include $2 million of cost based
investments and $27 million of available-for-sale equity securities at September
30, 2001. At September 30, 2000 other investments included $3 million of cost
based investments and $24 million of available-for-sale equity securities. The
cost and fair value of available-for-sale equity securities included in other
investments are summarized as follows:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2001 2000
------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost........................................................ $24 $20
Cumulative unrealized holding gains......................... 9 7
Foreign currency translation adjustment on foreign
denominated securities.................................... (6) (3)
--- ---
Fair value.................................................. $27 $24
=== ===
</Table>
Dividends received from available-for-sale equity securities were $1
million, $1 million, and $2 million in 2001, 2000, and 1999, respectively.
Unrealized holding gains were credited to accumulated other comprehensive income
in stockholders' equity net of deferred taxes of $4 million and $3 million at
September 30, 2001 and 2000, respectively. Foreign currency translation
adjustments on foreign securities are included in accumulated other
comprehensive income within stockholders' equity as part of foreign currency
translation adjustments. There were no sales of available-for-sale equity
securities for the years ended September 30, 2001 and 2000. Gains related to
sales of available-for-sale equity securities were $10 million in 1999.
37
<PAGE>
NOTE F PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment is summarized as follows:
<Table>
<Caption>
SEPTEMBER 30
----------------------
2001 2000
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land and improvements....................................... $ 50 $ 50
Buildings................................................... 299 290
Machinery and equipment..................................... 1,302 1,296
Other....................................................... 79 75
Construction in progress.................................... 126 83
------- ------
Total property, plant and equipment......................... 1,856 1,794
Less: accumulated depreciation.............................. (1,049) (988)
------- ------
Net property, plant and equipment........................... $ 807 $ 806
======= ======
</Table>
Depreciation expense for continuing operations was $111 million, $116
million and $114 million for the years ended September 30, 2001, 2000 and 1999,
respectively.
NOTE G ACCOUNTS PAYABLE & ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2001 2000
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accounts payable............................................ $128 $134
Accrued employee compensation............................... 31 32
Income taxes payable........................................ -- 152
Other accrued liabilities................................... 84 107
---- ----
Total.................................................. $243 $425
==== ====
</Table>
38
<PAGE>
NOTE H DEBT
Unsecured long-term debt consisted of the following:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2001 2000
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed Rate Notes (stated rate):
Notes due 2002-2022, 8.0%................................. $ 89 $ 89
Notes due 2004-2011, 7.1%................................. 90 90
Note due 2027, 7.3%....................................... 8 25
Note due 2027, put option 2004, 6.6%...................... 1 1
Notes due 2005-2018, 7.0%................................. 60 100
Guarantee of ESOP notes, due 2013, 8.3%................... 54 56
Notes due 2001-2002, 6.0%................................. 5 9
Other, due beginning in 2001 with various rates from 6.0%
to 15.5%............................................... 4 5
Variable Rate Notes (end of year rate):
Foreign term loan, due 2001, floating rate 4.7%........... -- 2
Foreign note due 2003, variable rate 5.2%................. 138 --
---- ----
449 377
Less: current portion of long-term debt..................... (30) (48)
---- ----
Total.................................................. $419 $329
==== ====
</Table>
In June 1992, Cabot filed a registration statement on Form S-3 with the
Securities and Exchange Commission covering $300 million of debt securities. In
1992, $105 million of medium-term notes were issued to refinance $105 million of
notes payable. In May of 2000, Cabot purchased $15.5 million of these medium-
term notes. The medium-term notes have a weighted-average maturity of 17 years
and a weighted-average interest rate of 8.0%.
In February 1997, Cabot issued $90 million of medium-term notes. The notes
have a weighted-average maturity of 11 years and a weighted-average interest
rate of 7.1%.
In October 1997, Cabot issued a total of $50 million in medium-term notes.
These notes included a $25 million note, with an interest rate of 7.3% due in
2027, and a $25 million note, with an interest rate of 6.6% due in 2027, with a
put option in 2004. In 2000, Cabot purchased $24.5 million of the 6.6% notes. In
fiscal 2001, Cabot purchased $17 million of the 7.3% notes.
In December 1998, Cabot issued $100 million in medium-term notes. The
outstanding notes have a weighted-average maturity of 14 years and a
weighted-average interest rate of 7.0%.
In November 1988, Cabot's Employee Stock Ownership Plan ("ESOP") borrowed
$75 million from an institutional lender in order to finance its purchase of
75,000 shares of Cabot's Series B ESOP Convertible Preferred Stock. This debt
bears interest at 8.3% per annum, and is to be repaid in equal quarterly
installments through December 31, 2013. Cabot, as guarantor, has reflected the
outstanding balance of $54 million and $56 million as a liability in the
consolidated balance sheet at September 30, 2001 and 2000, respectively. An
equal amount, representing deferred employee benefits, has been recorded as a
reduction to stockholders' equity.
In November 2000, a Cabot subsidiary borrowed 150 million EURO (currently
$138 million) from institutional lenders. The loan is payable in EUROs, bears
interest at EURIBOR plus 0.70%, and matures in November 2003.
In March 2000, Cabot Microelectronics borrowed $17 million from an
institutional lender. During the third quarter of fiscal 2000, Cabot
Microelectronics repaid $13.5 million of the loan. As a result of the spin-off
39
<PAGE>
of Cabot Microelectronics on September 29, 2000, this loan was not consolidated
into the results of Cabot Corporation at September 30, 2000.
During 2001, Cabot entered into a $250 million revolving credit loan
facility at floating rates, replacing a $300 million revolving credit and term
loan facility. The agreement contains specific covenants, including certain
maximum indebtedness limitations and minimum cash flow requirements, that would
limit the amount available for future borrowings. Commitment fees are paid based
on the used and unused portions of the facility. The facility is available
through July 13, 2006. No amounts were outstanding under either revolving credit
facility at September 30, 2001 or 2000.
In September 1998, Cabot filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission covering $500 million of debt
securities. This registration includes the remaining $55 million not then issued
under the 1992 registration. At September 30, 2001 and 2000, there were no
borrowings outstanding under this registration.
The aggregate principal amounts of long-term debt due in each of the five
fiscal years 2002 through 2006 and thereafter are $30 million, $143 million, $40
million, $3 million, $34 million and $199 million, respectively.
At September 30, 2001 and 2000, the fair market value of long-term
borrowings was approximately $306 million and $290 million, respectively.
The weighted-average interest rate on short-term borrowing of $13 million
and $20 million was approximately 6.5% and 9.1% as of September 30, 2001 and
2000, respectively.
NOTE I EMPLOYEE BENEFIT PLANS
Cabot provides both defined benefit and defined contribution plans for its
employees. Defined benefit pension plans include, the Cabot Cash Balance Plan
("CBP") and several foreign pension plans. Through December 31, 2000, defined
contribution plans included the Cabot Retirement Incentive Savings Plan
("CRISP"), Cabot Employee Savings Plan ("CESP"), and the Cabot Employee Stock
Ownership Plan ("ESOP"). Effective December 31, 2000, the CRISP and CESP merged
into and with the ESOP. The combined plan was renamed the Cabot Retirement
Savings Plan ("RSP"). The RSP plan provisions are consistent with the original
CRISP, CESP and ESOP plans.
DEFINED CONTRIBUTION PLANS
In September 1988, Cabot established an Employee Stock Ownership Plan
("ESOP"), a defined contribution plan, as an integral part of the retirement
program that was designed for participants to share in the growth of Cabot. All
employees of Cabot and its participating subsidiaries, except those individuals
subject to collective bargaining agreements and employed by the Performance
Materials segment, are eligible to participate beginning on the later of the
first day of employment or the date the employee is included in an employee
group that participates in the plan.
In November 1988, Cabot placed 75,336 shares of its Series B ESOP
Convertible Preferred Stock in the ESOP for cash at a price of $1,000 per share.
Each share of the Series B ESOP Convertible Preferred Stock was convertible into
87.5 shares of Cabot's common stock, subject to certain events and anti-dilution
adjustment provisions, and carries voting rights on an "as converted" basis. As
a result of the Cabot Microelectronics dividend (Note C) that was distributed to
the holders of Cabot common stock, on September 29, 2000, the conversion rate of
the Series B ESOP Convertible Preferred Stock was adjusted from 87.5 to 146.4
shares of Cabot's common stock. The trustee for the ESOP has the right to cause
Cabot to redeem shares sufficient to provide for periodic distributions to plan
participants. Cabot has the option to redeem the shares for $1,000 per share,
convert the shares to common stock, or a combination thereof.
The issued shares of Series B ESOP Convertible Preferred Stock receive
preferential and cumulative quarterly dividends, and are ranked as to dividends
and liquidation prior to Cabot's Series A Junior
40
<PAGE>
Participating Preferred Stock and common stock. At September 30, 2001, 9 million
shares of Cabot's common stock were reserved for conversion of the Series B ESOP
Convertible Preferred Stock.
On the last business day of each calendar quarter, 750 shares of the Series
B ESOP Convertible Preferred Stock are released and allocated to participants'
accounts. The allocation to each participant is based on the value of Cabot's
preferred stock, the number of shares allocated as dividends, and the total
eligible compensation. Effective January 1, 1997, the participant's respective
contribution allocation cannot fall below 4% of the participant's eligible
compensation. If the amount of the participant allocation were to fall below 4%,
Cabot would make an additional contribution to bring the total value to 4% for
the participant. The allocation is made to the account of each participant who
is employed on that date, or has retired, died, or become totally and
permanently disabled during the quarter.
In accordance with the plan document as amended, in March 2001, the number
of shares of preferred stock, which are released for allocation to participants'
accounts changed to 742.6 shares. Also in March 2001, the RSP received a cash
contribution from Cabot totaling $2 million. The cash contribution was used to
purchase Cabot common stock.
In October 1976, Cabot established the CRISP plan to allow nonunion
eligible employees to participate in the profits of Cabot, to encourage
long-term systematic savings, and to provide funds for retirement or possible
earlier needs. The plan is designed to qualify under section 401(k) of the
Internal Revenue Code of the United States. Cabot's contribution is in the form
of a matching contribution equivalent to 75% of a participant's eligible
before-tax and after-tax contribution up to 7.5% of the participant's eligible
compensation and is made on a quarterly basis.
In January 1987, Cabot established the CESP plan to encourage long-term
systematic savings, and to provide funds for retirement or possible earlier
needs. The plan is designed to qualify under section 401(k) of the Internal
Revenue Code of the United States. Only members of designated collective
bargaining units are eligible to participate in the plan. Although the plan
allows for discretionary contributions from Cabot, the provisions of the CESP do
not include minimum funding or matching requirements from Cabot.
Cabot recognized expenses related to defined contribution plans in the
amounts of $2 million in 2001, $6 million in 2000, and $7 million in 1999.
DEFINED BENEFIT PENSION PLANS
The worldwide defined benefit pension plan assets are comprised principally
of investments in equity securities and government bonds. Included in plan
assets at September 30, 2001 and 2000 are $7 million and $7 million,
respectively, of insurance contracts.
Measurement of defined benefit pension expense is based on assumptions used
to value the defined benefit pension liability at the beginning of the year.
In fiscal 2000, certain amendments were made to the Cabot plans to provide
for special termination benefits for the employees of Cabot Microelectronics
Corporation and Cabot Liquefied Natural Gas. In fiscal 2001, certain amendments
were made to the postretirement benefit plan to change eligibility requirements.
41
<PAGE>
The following provides a reconciliation of benefit obligations, plan
assets, the funded status, and weighted-average assumptions of the defined
benefit pension and postretirement benefit plans:
<Table>
<Caption>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
SEPTEMBER 30
-------------------------------------
2001 2000 2001 2000
------ ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year................... $211 $221 $ 92 $ 90
Service cost.............................................. 8 6 1 1
Interest cost............................................. 14 13 6 6
Plan participants' contribution........................... -- -- 1 --
Amendments................................................ -- 7 (3) --
Foreign currency exchange rate changes.................... 1 (18) -- --
Gain (loss) from changes in actuarial assumptions......... 15 (1) 5 --
Special termination benefit............................... -- 1 -- --
Benefits paid............................................. (16) (18) (7) (5)
---- ---- ---- ----
Benefit obligation at end of year......................... $233 $211 $ 95 $ 92
==== ==== ==== ====
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year............ $281 $263 $ -- $ --
Actual return on plan assets.............................. (14) 51 -- --
Employer contribution..................................... 4 4 6 5
Plan participants' contribution........................... -- -- 1 --
Foreign currency exchange rate changes.................... 1 (19) -- --
Benefits paid............................................. (16) (18) (7) (5)
---- ---- ---- ----
Fair value of plan assets at end of year.................. $256 $281 $ -- $ --
==== ==== ==== ====
Funded status............................................... $ 23 $ 70 $(95) $(92)
Unrecognized transition amount.............................. (2) (1) -- --
Unrecognized prior service cost............................. 6 6 (2) (3)
Unrecognized net (gain) loss................................ (34) (81) 19 17
---- ---- ---- ----
Recognized liability........................................ $ (7) $ (6) $(78) $(78)
==== ==== ==== ====
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
CONSIST OF:
Prepaid benefit cost...................................... $ 14 $ 17 $ -- $ --
Accrued benefit liabilities............................... (21) (23) (78) (78)
---- ---- ---- ----
Net amount recognized..................................... $ (7) $ (6) $(78) $(78)
==== ==== ==== ====
WEIGHTED-AVERAGE RATES:
Assumptions as of September 30
Discount rate............................................. 6.4% 6.6% 6.8% 7.3%
Expected rate of return on plan assets.................... 8.4% 8.4% N/A N/A
Assumed rate of increase in compensation.................. 4.3% 4.3% N/A N/A
Assumed annual rate of increase in health care benefits... N/A N/A 6.3% 6.5%
</Table>
Net periodic defined benefit pension and other postretirement benefit costs
include the following components:
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- ------------------------
YEAR ENDED SEPTEMBER 30
------------------------------------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $ 8 $ 6 $ 7 $ 1 $ 1 $ 1
Interest cost.............................. 14 13 13 6 6 6
Expected return on plan assets............. (19) (14) (16) -- -- --
Amortization of transition asset........... (1) (1) (1) -- -- --
</Table>
42
<PAGE>
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- ------------------------
YEAR ENDED SEPTEMBER 30
------------------------------------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Recognized losses (gains).................. (3) (2) 1 1 1 1
Settlement gain............................ -- -- -- (3) -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost.................. $ (1) $ 2 $ 4 $ 5 $ 8 $ 8
===== ===== ===== ===== ===== =====
</Table>
POSTRETIREMENT BENEFIT PLANS
Cabot also has postretirement benefit plans that provide certain health
care and life insurance benefits for retired employees. Substantially all U.S.
employees become eligible for these benefits if they have met certain age and
service requirements at retirement. Cabot funds the plans as claims or insurance
premiums come due.
Postretirement benefit plans include health care and life insurance plans.
Measurement of postretirement benefit expense is based on assumptions used to
value the postretirement benefit liability at the beginning of the year. Assumed
health care trend rates have a significant effect on the amounts reported for
the health care plans. A 1-percentage-point change in the 2001 assumed health
care cost trend rate would have the following effects:
<Table>
<Caption>
1-PERCENTAGE-POINT
---------------------
INCREASE DECREASE
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
September 30
Effect on total of service and interest cost components... $1 $(1)
Effect on postretirement benefit obligation............... $8 $(8)
</Table>
NOTE J EQUITY INCENTIVE PLANS
Cabot has an Equity Incentive Plan for key employees. Under the plan
adopted in 1988, Cabot was able to grant participants various types of stock and
stock-based awards. During the period from 1988 through 1991, the awards granted
consisted of stock options, performance appreciation rights ("PARs"), and tandem
units that may be exercised as stock options or PARs. These awards were granted
at the fair market value of Cabot's common stock at date of grant, vested
ratably on each of the next four anniversaries of the award, and generally
expire ten years from the date of grant. From 1992 through 1995, awards
consisted of Cabot common stock, which employees could elect to receive in the
form of restricted stock purchased at a price equal to 50% of the fair market
value on the date of the award, nonqualified stock options at fair market value
of Cabot's common stock on the date of the award, or a combination of one-half
of each. Effective in March 1996, no new awards were permitted under this plan.
In December 1995, the Board of Directors adopted, and in March 1996, Cabot
stockholders approved, the 1996 Equity Incentive Plan. Under this plan, Cabot
can make various types of stock and stock-based awards, the terms of which are
determined by Cabot's Compensation Committee. Awards under the 1996 plan have
been made primarily as part of Cabot's Long-Term Incentive Program. These awards
consist of restricted stock, which could be purchased at a price equal to 40% of
the fair market value on the date of the award, or nonqualified stock options
exercisable at the fair market value of Cabot's common stock on the date of the
award. Variations of the restricted stock awards were made to international
employees in order to try to provide results comparable to U.S. employees. The
awards generally vest on the third anniversary of the grant for participants
then employed by Cabot, and the options generally expire five years from the
date of grant. In November 1998, the Board of Directors adopted, and in March
1999, Cabot stockholders approved, the 1999 Equity Incentive Plan. This plan is
similar to the 1996 Equity Incentive Plan with the exception of the discount
price, which was established at a price equal to 30% of the fair market value on
the date of the award.
Cabot had 6 million shares of common stock reserved for issuance under the
1996 and 1999 plans. There were approximately 1 million shares available for
future grants at September 30, 2001, under both plans. Compensation expense
recognized during 2001, 2000, and 1999 for restricted stock grants was $26
million,
43
<PAGE>
$17 million, and $12 million, respectively. Compensation expense for 2001
includes $4 million to accelerate the vesting of restricted stock grants and
stock options held by Cabot's former Chief Executive Officer and Chief Financial
Officer. The $4 million charge is included in special items on the consolidated
statement of income. The Compensation Committee of the Board of Directors voted
on July 14, 2000 to accelerate the vesting of both the restricted stock grants
and the stock options held by employees of Cabot Microelectronics and Cabot
Liquefied Natural Gas. As a result, the compensation charge for fiscal 2000
includes a $2 million charge related to the accelerated vesting of those
restricted stock grants, which has been included in discontinued operations.
RESTRICTED STOCK
The following table summarizes the plans' restricted stock activity from
September 30, 1998 through September 30, 2001:
<Table>
<Caption>
WEIGHTED-
AVERAGE
RESTRICTED PURCHASE
STOCK PRICE
---------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C>
Outstanding at September 30, 1998........................... 2,501 $16.27
Granted..................................................... 1,034 9.19
Vested...................................................... (733) 11.48
Canceled.................................................... (135) 9.60
------
Outstanding at September 30, 1999........................... 2,667 $11.08
Granted..................................................... 1,497 8.85
Vested...................................................... (875) 12.43
Canceled.................................................... (217) 10.75
------
Outstanding at September 30, 2000........................... 3,072 $11.35
Granted..................................................... 1,169 12.64
Vested...................................................... (1,204) 13.60
Canceled.................................................... (113) 13.80
------
Outstanding at September 30, 2001........................... 2,924 $10.96
======
</Table>
STOCK-BASED COMPENSATION
The following table summarizes the plans' restricted stock activity from
September 30, 1998 through September 30, 2001:
<Table>
<Caption>
WEIGHTED-
AVERAGE
STOCK EXERCISE
OPTIONS PRICE
------- ---------
(OPTIONS IN THOUSANDS)
<S> <C> <C>
Outstanding at September 30, 1998........................... 1,322 $16.26
Granted..................................................... 582 27.00
Exercised................................................... (209) 9.73
Canceled.................................................... (50) 27.96
-----
Outstanding at September 30, 1999........................... 1,645 $20.53
Granted..................................................... 435 24.44
Exercised................................................... (685) 10.98
Canceled.................................................... (179) 27.41
Adjustment due to Cabot Microelectronics spin-off........... 910
-----
</Table>
44
<PAGE>
<Table>
<Caption>
WEIGHTED-
AVERAGE
STOCK EXERCISE
OPTIONS PRICE
------- ---------
(OPTIONS IN THOUSANDS)
<S> <C> <C>
Outstanding at September 30, 2000........................... 2,126 $15.07
Granted..................................................... 284 34.87
Exercised................................................... (437) 12.46
Canceled.................................................... (117) 15.70
-----
Outstanding at September 30, 2001........................... 1,856 $18.67
=====
</Table>
Options outstanding at September 30, 2001, were as follows:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
WEIGHTED-AVERAGE
----------------------
REMAINING WEIGHTED-
THOUSANDS CONTRACTUAL THOUSANDS AVERAGE
OF OPTIONS EXERCISE LIFE OF OPTIONS EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING PRICE (YEARS) EXERCISABLE PRICE
- ----------------------- ----------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
10.83-13.70...................... 149 $11.07 3.75 12 $13.70
15.50-15.57...................... 1,199 $15.53 3.39 -- --
20.27-34.87...................... 508 $28.31 3.65 228 $20.27
----- ---
Total Options.................... 1,856 240
===== ===
</Table>
Due to the fiscal 2000 spin-off of Cabot Microelectronics, Cabot adjusted
the exercise price and number of options outstanding at September 30, 2000 to
maintain the same intrinsic value as prior to the spin-off. The estimated
weighted-average fair value of the options granted during fiscal 2001, 2000 and
1999 were $7.06, $7.06 and $8.24, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
---------------------------
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Expected stock price volatility........................... 49% 39% 35%
Risk free interest rate................................... 4.5% 6.5% 5.4%
Expected life of options.................................. 3 years 4 years 4 years
Expected annual dividends................................. $0.48 $0.44 $0.44
</Table>
If the fair value method prescribed by FAS No. 123 had been used, Cabot's
pro forma net income and pro forma net income per common share for fiscal 2001,
2000 and 1999 would have been as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
------------------------
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
Net income -- pro forma (in millions)....................... $ 122 $ 451 $ 96
Net income per common share -- pro forma:
Basic..................................................... $1.91 $7.00 $1.45
Diluted................................................... $1.63 $6.18 $1.29
</Table>
The effects of applying the fair value method in this pro forma disclosure
are not indicative of future amounts. The fair value method does not apply to
awards prior to 1995 and additional awards in future years are anticipated.
45
<PAGE>
NOTE K STOCKHOLDERS' EQUITY
The following table summarizes Cabot's stock activity:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
--------------------------------
2001 2000 1999
------ ------ ------
(PREFERRED SHARES IN THOUSANDS)
(COMMON SHARES IN MILLIONS)
<S> <C> <C> <C>
Preferred Stock
Beginning of year....................................... 75 75 75
-- -- --
End of year.......................................... 75 75 75
== == ==
Preferred Treasury Stock
Beginning of year....................................... 13 10 9
Purchased preferred treasury stock...................... 3 3 1
-- -- --
End of year.......................................... 16 13 10
== == ==
Common Stock
Beginning of year....................................... 68 67 67
Issued common stock..................................... 2 3 2
Purchased and retired common stock...................... (7) (2) (2)
-- -- --
End of year.......................................... 63 68 67
== == ==
</Table>
In May 2001, 2000, and 1999, Cabot adopted a stock purchase assistance plan
whereby Cabot may extend credit to purchase restricted shares of Cabot
Corporation common stock awarded under Cabot's 1999 Equity Incentive Plans to
those participants in Cabot's 2001, 2000 and 1999 Long-Term Incentive Programs.
These full recourse notes bear interest at 6% per annum on a principal amount of
up to 30% of the aggregate fair market value of such purchased stock on the day
of grant. Interest is payable quarterly and principal is due on various dates
through May 2004. On June 30, 1999, Cabot purchased, from a financial
institution, loans to Cabot employees totaling $18 million. These loans were
made to help finance the purchase of restricted shares of Cabot Corporation
common stock under Cabot's Long-Term Incentive Program.
In September 2000, the Board of Directors authorized Cabot to purchase up
to 10 million shares of Cabot's common stock superseding the previous
authorization issued in January 2000. Approximately 7 million shares have been
purchased under this new authorization at November 30, 2001.
In January 2000, the Board of Directors authorized Cabot to purchase up to
4 million shares of Cabot's common stock, superseding the previous authorization
issued in September 1998. Also in September, 1998, the Board of Directors
adopted a resolution to retire and restore to the status of authorized, but
unissued, both the entire balance of shares of common stock classified as common
treasury stock and all subsequent acquisitions/purchases effective September 30,
1998.
In November 1995, Cabot declared a dividend of one Preferred Stock Purchase
Right ("Right") for each outstanding share of Cabot's common stock. Each Right
entitles the holder, upon the occurrence of certain specified events, to
purchase from Cabot one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a purchase price of $200 per share. The Right
further provides that each Right will entitle the holder, upon the occurrence of
certain other specified events, to purchase from Cabot its common stock having a
value of twice the exercise price of the Right, and upon the occurrence of
certain other specified events, to purchase from another person into which Cabot
was merged or which acquired 50% or more of Cabot's assets or earnings power,
common stock of such other person having a value of twice the exercise price of
the Right. The Right may generally be redeemed by Cabot at a price of $0.01 per
Right. The Rights are not presently exercisable and will expire on November 10,
2005.
46
<PAGE>
COMPREHENSIVE INCOME
The pre-tax, tax, and after-tax effects of the components of other
comprehensive income are shown below:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
-------------------------
PRE-TAX TAX AFTER-TAX
------- --- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1999
Foreign currency translation adjustments.................... $(17) $-- $(17)
Unrealized gain on marketable equity securities:
Unrealized holding loss arising during the period......... (10) 3 (7)
Less: reclassification adjustment for gain realized in net
income................................................. (11) 4 (7)
---- -- ----
Change in unrealized gain................................. (21) 7 (14)
---- -- ----
Other comprehensive income (loss)........................... $(38) $7 $(31)
==== == ====
2000
Foreign currency translation adjustments.................... $(58) $-- $(58)
Unrealized holding gain arising during the period........... 1 -- 1
---- -- ----
Other comprehensive income (loss)........................... $(57) $-- $(57)
==== == ====
2001
Foreign currency translation adjustments.................... $(26) $-- $(26)
Unrealized holding gain arising during the period........... 2 -- 2
---- -- ----
Other comprehensive income (loss)........................... $(24) $-- $(24)
==== == ====
</Table>
The balance of related after-tax components comprising accumulated other
comprehensive income (loss) are summarized below:
<Table>
<Caption>
SEPTEMBER 30
-----------------------
2001 2000 1999
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Foreign currency translation adjustments.................... $(131) $(105) $(47)
Unrealized holding gain on marketable equity securities..... 6 4 3
----- ----- ----
Accumulated other comprehensive income (loss)............... $(125) $(101) $(44)
===== ===== ====
</Table>
NOTE L EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") were calculated as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC EPS:
Income available to common shares (numerator)............. $ 121 $ 450 $ 94
===== ===== =====
Weighted-average common shares outstanding................ 65 67 67
Less: contingently issuable shares(a)..................... (3) (3) (3)
----- ----- -----
Adjusted weighted-average shares (denominator)............ 62 64 64
===== ===== =====
Basic EPS................................................. $1.94 $7.04 $1.47
===== ===== =====
</Table>
47
<PAGE>
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
DILUTED EPS:
Income available to common shares......................... $ 121 $ 450 $ 94
Dividends on preferred stock.............................. 3 3 3
Less: income impact of assumed conversion of preferred
stock.................................................. -- (2) (2)
----- ----- -----
Income available to common shares plus assumed conversions
(numerator)............................................ $ 124 $ 451 $ 95
===== ===== =====
Weighted-average common shares outstanding................ 65 67 67
Effect of dilutive securities:
Conversion of Preferred Stock.......................... 9 6 6
Conversion of incentive stock options(b)............... -- -- --
----- ----- -----
Adjusted weighted-average shares (denominator)............ 74 73 73
===== ===== =====
Diluted EPS............................................... $1.66 $6.20 $1.31
===== ===== =====
</Table>
- ---------------
(a) Represents restricted stock issued under Cabot Equity Incentive Plans.
(b) Options to purchase 2 million shares of common stock with a weighted-average
exercise price of $16.61 were outstanding at September 30, 2000, but were
not included in the computation of diluted EPS, because the options'
exercise price was greater than the average market price of the common
shares, adjusted for the spin-off of Cabot Microelectronics Corporation. At
September 30, 2001, the average fair value of Cabot's stock price exceeded
the exercise price of all options outstanding. As such, all options
outstanding have been included in the calculation of diluted earnings per
share.
NOTE M INCOME TAXES
Income before income taxes was as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Income from continuing operations:
Domestic.................................................. $ 66 $ 54 $ 18
Foreign................................................... 84 103 95
---- ---- ----
150 157 113
---- ---- ----
Discontinued Operations:
Income from operations of discontinued businesses......... -- 62 23
Gain on sale of business.................................. 5 487 --
---- ---- ----
5 549 23
---- ---- ----
Total.................................................. $155 $706 $136
==== ==== ====
</Table>
48
<PAGE>
Taxes on income consisted of the following:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
--------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
U.S. federal and state:
Current................................................... $17 $ (3) $ 5
Deferred.................................................. (2) 16 (2)
--- ---- ---
Total.................................................. 15 13 3
--- ---- ---
Foreign:
Current................................................... 29 43 39
Deferred.................................................. (2) 1 (1)
--- ---- ---
Total.................................................. 27 44 38
--- ---- ---
Total U.S. and foreign............................... 42 57 41
--- ---- ---
Discontinued Operations:
Income from operations of discontinued businesses......... -- 22 8
Gain on sale of business.................................. 2 178 --
--- ---- ---
Total Discontinued Operations........................ 2 200 8
--- ---- ---
Total.................................................. $44 $257 $49
=== ==== ===
</Table>
The provision for income taxes at Cabot's effective tax rate differed from
the provision for income taxes at the statutory rate as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
--------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Continuing Operations:
Computed tax expense at the federal statutory rate........ $53 $ 55 $40
Foreign income:
Impact of taxation at different rates, repatriation and
other................................................ (13) 2 3
Impact of foreign losses for which a current tax
benefit is not available............................. 1 1 4
State taxes, net of federal effect........................ 2 -- --
Foreign sales corporation................................. (2) (1) (2)
U.S. and state benefits from research and experimentation
activities............................................. (1) (1) (2)
Other, net................................................ 2 1 (2)
--- ---- ---
Total Continuing Operations.......................... 42 57 41
--- ---- ---
Discontinued Operations:
Income from operations of discontinued businesses......... -- 22 8
Gain on sale of businesses................................ 2 178 --
--- ---- ---
Total Discontinued Operations........................ 2 200 8
--- ---- ---
Provision for income taxes........................... $44 $257 $49
=== ==== ===
</Table>
49
<PAGE>
Significant components of deferred income taxes were as follows:
<Table>
<Caption>
SEPTEMBER 30
---------------------
2001 2000
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization............................. $ 29 $ 30
Pension and other benefits................................ 68 56
Environmental matters..................................... 11 13
Special charges........................................... 5 7
Investments............................................... 11 11
State and local taxes..................................... -- 3
Net operating loss and other tax carryforwards............ 17 17
Other..................................................... 26 26
---- ----
Subtotal............................................... 167 163
Valuation allowances...................................... (11) (10)
---- ----
Total deferred tax assets.............................. $156 $153
==== ====
Deferred tax liabilities:
Depreciation and amortization............................. $ 86 $ 76
Pension and other benefits................................ 16 14
Special charges........................................... 3 4
Investments............................................... 1 1
State and local taxes..................................... 1 --
Other..................................................... 127 130
---- ----
Total deferred tax liabilities......................... $234 $225
==== ====
</Table>
The valuation allowance at September 30, 2001 and 2000 represents
management's best estimate of the ultimate realization of the net deferred tax
amounts. The deferred tax valuation allowance increased in 2001 by $1 million
due to the uncertainty of the ultimate realization of certain future foreign tax
benefits and net operating losses reflected as deferred tax assets.
Approximately $62 million of net operating losses and other tax
carryforwards remain at September 30, 2001. Of this amount, $30 million will
expire in the years 2002 through 2008; $32 million can be carried forward
indefinitely. The benefits of these carryforwards are dependent upon taxable
income during the carryforward period in those foreign jurisdictions where they
arose. Accordingly, a valuation allowance has been provided where management has
determined that it is more likely than not that the carryforwards will not be
utilized.
Provisions have not been made for U.S. income taxes or foreign withholding
taxes on approximately $130 million of undistributed earnings of foreign
subsidiaries, as these earnings are considered indefinitely reinvested. These
earnings could become subject to U.S. income taxes and foreign withholding taxes
(subject to a reduction for foreign tax credits) if they were remitted as
dividends, were loaned to Cabot or a U.S. subsidiary, or if Cabot should sell
its stock in the subsidiaries. However, Cabot believes that U.S. foreign tax
credits would largely eliminate any U.S. income tax on these earnings.
50
<PAGE>
NOTE N SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and taxes were as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
--------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Income taxes paid........................................... $197 $50 $59
Interest paid............................................... $ 21 $38 $36
</Table>
Cabot issued restricted stock for notes receivable of $11 million, $10
million and $8 million in 2001, 2000 and 1999, respectively.
During 2000, Cabot acquired the remaining 50% interest in a joint venture,
previously accounted for under the equity method of accounting. Upon purchase of
the additional interest, the value of the investment was allocated to the
respective net assets. Also in 2000, Cabot spun-off its remaining equity
interest in Cabot Microelectronics by distributing a special dividend to
shareholders.
During 1999, Cabot made a charitable contribution of equity securities
worth $1 million.
NOTE O COMMITMENTS & CONTINGENCIES
LEASE COMMITMENTS
Cabot leases certain transportation vehicles, warehouse facilities, office
space, machinery, and equipment under operating cancelable and non-cancelable
leases, most of which expire within ten years and may be renewed by Cabot. Rent
expense under such arrangements for 2001, 2000, and 1999 totaled $11 million,
$12 million and $14 million, respectively. Future minimum rental commitments
under non-cancelable leases are as follows:
<Table>
<Caption>
DOLLARS IN
MILLIONS
----------
<S> <C>
2002........................................................ $ 9
2003........................................................ 8
2004........................................................ 8
2005........................................................ 8
2006........................................................ 7
2007 and thereafter......................................... 29
---
Total future minimum rental commitments..................... $69
===
</Table>
OTHER LONG-TERM COMMITMENTS
Cabot has entered into long-term purchase agreements for various key raw
materials in the performance materials business. The purchase commitments
covered by these agreements aggregate approximately $287 million for the periods
2002 to 2005.
During 2001, Cabot entered into long-term supply agreements ranging from
three to five years, with certain performance material customers. The contracts
provide such customers with agreed upon amounts of product at agreed upon
prices.
During 1995, Cabot entered into long-term supply agreements of more than
six years with certain North American tire customers. The contracts are designed
to provide such customers with agreed-upon amounts of carbon black at prices
based on an agreed-upon formula.
CONTINGENCIES
Cabot is a defendant, or potentially responsible party, in various lawsuits
and environmental proceedings wherein substantial amounts are claimed or at
issue.
51
<PAGE>
The Company has exposure to a safety respiratory products business that it
acquired in April 1990. It disposed of that business in July 1995. In connection
with its acquisition of the business, the Company agreed with the seller,
American Optical Corporation, and another former owner of the business to share
responsibility for legal costs, including settlements and judgments, in
connection with a number of lawsuits and claims relating to the respirators.
These lawsuits and claims typically involve allegations that the plaintiffs
suffer from asbestosis or silicosis as a result, in part, from respirators that
were negligently designed or labeled. It is management's opinion, that these
judgments or suits should not result in final judgments or settlements that
would have a material effect on Cabot's financial condition or results of
operations.
As of September 30, 2001 and 2000, Cabot had approximately $30 million and
$38 million, respectively, reserved for environmental matters primarily related
to divested businesses. The amount represents Cabot's current best estimate of
its share of costs likely to be incurred at those sites where costs are
reasonably estimable based on its analysis of the extent of cleanup required,
alternative cleanup methods available, abilities of other responsible parties to
contribute, and its interpretation of applicable laws and regulations applicable
to each site. Cabot reviews the adequacy of this reserve as circumstances change
at individual sites. Cabot is unable to reasonably estimate the amount of
possible loss in excess of the accrued amount. Operating results included
charges for environmental expense of $1 million in 2001, $3 million in 2000 and
$4 million in 1999.
In the opinion of Cabot, although final disposition of these suits and
claims may impact Cabot's financial statements in a particular period, they will
not, in the aggregate, have a material adverse effect on Cabot's financial
position.
NOTE P RISK MANAGEMENT
MARKET RISK
Cabot's principal risk management objective is to identify and monitor its
exposure to changes in interest rates, foreign currency rates, commodity prices
and Cabot's share price, in order to assess the impact that changes in each
could have on future cash flow and earnings. Cabot manages these risks through
normal operating and financial activities and, when deemed appropriate, through
the use of derivative financial instruments. Gains or losses associated with
financial instruments are generally offset by the changes in value of the
underlying transaction. Market risk exposure to other financial instruments is
not material to earnings, cash flow, or fair values.
Cabot's risk management policy prohibits entering into financial
instruments for speculative purposes. All instruments entered into by Cabot are
reviewed and approved by Cabot's Risk Management Committee, which is charged
with enforcing Cabot's risk management policy.
INTEREST RATES
Cabot's objective in managing its exposure to interest rate changes is to
maintain an appropriate balance of fixed and variable rate debt and to match
borrowing costs with the economics of Cabot's business cycles. Cabot may use
interest rate swaps to adjust fixed and variable rate debt positions. Cabot did
not enter into financial instruments to hedge interest rates during 2001 or
2000. Cabot settled its remaining interest rate swaps in January 2000. For 2000
and 1999 the gains or losses in interest income or expense associated with
interest rate swaps were immaterial.
In October of 2001, Cabot entered into interest rate swaps in an aggregate
notional amount of $97 million in order to balance its mix of fixed and variable
rate debt. The instruments mature on various dates through February 2007.
FOREIGN CURRENCY
Cabot's international operations are subject to certain risks, including
currency fluctuations and government actions. Operations in each country are
closely monitored so Cabot can respond to changing economic and political
environments and to fluctuations in foreign currencies. Accordingly, Cabot
utilizes short-term forward contracts to hedge receivables and payables
denominated in currencies other than its
52
<PAGE>
foreign entities' functional currencies. In 2001, none of Cabot's forward
contracts were designated as hedging instruments under FAS No. 133. Cabot
monitors its foreign exchange exposures and adjusts its hedge position
accordingly. Cabot's forward foreign exchange contracts are denominated
primarily in the EURO, Japanese yen, British pound sterling, Canadian dollar,
and Australian dollar.
At September 30, 2001 and 2000, Cabot had $80 million and $60 million in
foreign currency instruments outstanding, respectively. For 2001, 2000 and 1999,
the net realized gain or (loss) associated with these types of instruments were
$(2) million, $3 million and $(3) million, respectively. The net unrealized
losses as of September 30, 2001 and 2000, based on the fair value of the
instruments, were not material to each respective period, and have been recorded
as expenses. Gains and losses associated with foreign exchange contracts are
classified in other charges.
SHARE REPURCHASES
As a regular practice, Cabot repurchases its shares in order to offset
dilution caused by issuing shares under its various employee stock plans. In
addition, Cabot may repurchase its shares as a preferred method of returning
excess cash to shareholders. From time to time, Cabot enters into derivative
instruments in its stock in order to fix the price of stock for delivery at a
future date. These agreements provide Cabot with the right to settle forward
contracts in cash or an equivalent value of Cabot Corporation common stock. In
2001 Cabot purchased 100,000 shares of its common stock under share repurchase
contracts, at an average price of $35 per share. At September 30, 2001 there
were no open share repurchase contracts.
COMMODITIES
Cabot is exposed to price fluctuations in certain commodities, such as
feedstock and natural gas. When it owned the LNG segment, from time to time,
Cabot entered into commodity futures contracts, commodity price swaps, and/or
option contracts to hedge a portion of firmly committed and anticipated
transactions against natural gas price fluctuations. Cabot monitored its
exposure to ensure the overall effectiveness of its hedge positions. In 2000,
Cabot realized a $1 million loss on futures contracts. In 1999, Cabot realized
gains associated with futures of $2 million and realized losses associated with
options of $2 million. At September 30, 2001 and 2000, no contracts were
outstanding.
CONCENTRATION OF CREDIT
Financial instruments that subject Cabot to concentrations of credit risk
consist principally of trade receivables. Tire manufacturers and customers of
the Performance Materials business comprise significant portions of Cabot's
trade receivable balance. The majority of these receivables were current at
September 30, 2001. At September 30, 2001 and 2000, Cabot had trade receivables
of approximately $88 million and $89 million, respectively, from tire
manufacturers. Cabot's exposure to credit risk associated with nonpayment by
tire manufacturers is affected by conditions or occurrences within the tire
industry.
NOTE Q FINANCIAL INFORMATION BY SEGMENT & GEOGRAPHIC AREA
SEGMENT INFORMATION
During 1999, Cabot reorganized into market-focused strategic business units
("SBUs"), each having responsibility for individual global marketing strategies,
day-to-day business operations, and new product development. Under FAS No. 131,
these SBUs aggregate into three reportable segments: Chemical Businesses (which
includes carbon black, fumed metal oxides, and inkjet colorants), Performance
Materials, and Specialty Fluids. Cabot was organized into SBUs to better direct
its technical strengths and focus on key markets. Cabot's business segment
reporting under FAS No. 131 is consistent with the changes in its financial
reporting structure incorporated in Cabot's management reporting.
The Chemical Businesses produce carbon black, fumed metal oxides and inkjet
colorants. Carbon black is a fine particle used as an agent for rubber
reinforcement, pigmentation, conductivity or UV protection. Carbon black is
produced in a wide variety of commodity and specialty grades. Some of the end
products
53
<PAGE>
which use carbon black include tires, rubber hoses, roofing materials, inks,
paints, and sealants. Fumed metal oxides are ultra fine, high-purity particles
used as reinforcing, thickening, abrasive, thixotropic, suspending or
anti-caking agents. The automotive, construction, microelectronics and consumer
products industries use fumed metal oxides in their sealants, toners,
insulations, composites, and cosmetics. Inkjet colorants are high-purity black
pigment dispersions, used in inkjet printing applications.
The Performance Materials segment produces tantalum, niobium and their
alloys for the electronic materials and refractory metals industries. Tantalum,
which accounts for the majority of this segment's sales, is produced in various
forms, including powder and wire for electronic capacitors. Tantalum, niobium
and their alloys are also produced in wrought form for non-electronic
applications, such as chemical process equipment, the production of superalloys,
and for various other industrial and aerospace applications.
The Specialty Fluids segment produces cesium formate as a drilling and
completion fluid for use in high pressure and high temperature oil and gas well
operations. Cesium formate is a solids-free high density fluid that has a low
viscosity, permitting it to flow readily in oil and gas wells. The fluid is
resistant to high temperatures, does not damage producing reservoirs and is
readily biodegradable.
The accounting policies of the segments are the same as those described in
the summary of "Significant Accounting Policies." Exceptions are noted as
follows and are incorporated in the tables on the following page. Revenues from
external customers for certain operating segments within the Chemical Businesses
include 100% of equity affiliate sales. Transfers of ore to Performance
Materials from Specialty Fluids are generally valued at market-based prices, and
revenues generated by these transfers are shown as segment revenues from
external customers. Segment profit is a measure used by Cabot's chief operating
decision makers to measure consolidated operating results and assess segment
performance. Cabot evaluates the performance of its segments and allocates
resources based on segment profit or loss before tax ("PBT"), including equity
in net income of affiliated companies, but excluding special items (Note B),
gains on the sale of equity securities, and foreign currency transaction gains
and losses. Costs related to divested businesses and interest expense are not
allocated to operating segments. Cash, short-term investments, investments other
than equity basis, income taxes receivable, deferred taxes, and headquarters'
assets are included in Unallocated and Other. Expenditures for additions to
long-lived assets include total equity and other investments (including
available-for-sale securities), property, plant and equipment, and intangible
assets.
Financial information by segment was as follows:
<Table>
<Caption>
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER(1) TOTAL
---------- ----------- --------- ------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED SEPTEMBER 30
2001
Revenues from external
customers(2).................... $1,335 $329 $27 $1,691 $(21) $1,670
Depreciation and amortization..... 98 10 4 112 3 115
Equity in net income of affiliated
companies....................... 5 15 -- 20 -- 20
Profit (loss) from continuing
operations before taxes(4)...... 121 78 -- 199 (49) 150
Assets(5)......................... 1,155 249 55 1,459 460 1,919
Investment in equity-basis
affiliates...................... 47 29 -- 76 -- 76
Total expenditures for additions
to long-lived assets(6)......... 87 25 3 115 18 133
</Table>
54
<PAGE>
<Table>
<Caption>
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER(1) TOTAL
---------- ----------- --------- ------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
2000
Revenues from external
customers(2).................... $1,360 $215 $20 $1,595 $(21) $1,574
Depreciation and
amortization(3)................. 105 9 2 116 13 129
Equity in net income of affiliated
companies....................... 5 8 -- 13 -- 13
Profit (loss) from continuing
operations before taxes(4)...... 180 38 (3) 215 (58) 157
Assets(5)......................... 1,168 195 47 1,410 724 2,134
Investment in equity-basis
affiliates...................... 47 27 -- 74 -- 74
Total expenditures for additions
to long-lived assets(6)......... 87 12 1 100 53 153
1999
Revenues from external
customers(2).................... $1,224 $187 $12 $1,423 $(18) $1,405
Depreciation and
amortization(3)................. 104 8 4 116 9 125
Equity in net income of affiliated
companies....................... 8 5 -- 13 -- 13
Profit (loss) from continuing
operations before taxes(4)...... 163 30 (3) 190 (77) 113
Assets(5)......................... 1,244 205 50 1,499 343 1,842
Investment in equity-basis
affiliates...................... 52 20 -- 72 -- 72
Total expenditures for additions
to long-lived assets(6)......... 114 9 3 126 46 172
</Table>
- ---------------
(1) Unallocated and Other includes certain corporate items and eliminations that
are not allocated to the operating segments.
(2) Revenues from external customers for certain operating segments include 100%
of equity affiliate sales and transfers of materials at cost and at
market-based prices. Unallocated and Other reflects an adjustment for these
equity affiliate sales and interoperating segment revenues and includes
royalties paid by equity affiliates offset by external shipping and handling
fees:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Equity affiliate sales.................................. $(63) $(74) $(69)
Royalties paid by equity affiliates..................... 6 6 7
Shipping and handling fees.............................. 44 57 51
Interoperating segment revenues......................... (8) (10) (7)
---- ---- ----
Total.............................................. $(21) $(21) $(18)
==== ==== ====
</Table>
(3) Unallocated and Other includes depreciation and amortization for the
discontinued segments, Cabot LNG and Cabot Microelectronics, amounting to $9
million and $7 million for the fiscal years 2000 and 1999, respectively.
55
<PAGE>
(4) Profit or loss from continuing operations before taxes for Unallocated and
Other includes:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Interest expense........................................ $(32) $(33) $(39)
Gain on sale of equity securities....................... -- -- 10
Corporate governance costs/other expenses, net(a)....... 27 (1) (8)
Equity in net income of affiliated companies............ (20) (13) (13)
Foreign currency transaction gains (losses)(b).......... (3) (1) (1)
Special charges (Note B)................................ (21) (10) (26)
---- ---- ----
Total.............................................. $(49) $(58) $(77)
==== ==== ====
</Table>
- ---------------
(a) Corporate governance costs/other expenses, net includes costs
previously allocated to discontinued segments reduced by investment
income.
(b) Net of other hedging activity.
(5) Unallocated and Other assets includes cash, short-term investments,
investments other than equity basis, income taxes receivable, deferred
taxes, and headquarters' assets. Also included are the assets for the
discontinued segments, Cabot LNG and Cabot Microelectronics, amounting to
$237 million for fiscal year 1999.
(6) Expenditures for additions to long-lived assets include total equity and
other investments (including available-for-sale securities), property, plant
and equipment, and intangible assets. In addition, included in Unallocated
and Other are the expenditures for additions to long-lived assets for the
discontinued segments, Cabot LNG and Cabot Microelectronics, amounting to
$45 million and $39 million for the fiscal years 2000 and 1999,
respectively.
GEOGRAPHIC AREA INFORMATION
Sales are attributed to the United States and to all foreign countries
based on the customer location (region of sale) and not on geographic location
from which goods were shipped (region of manufacture). Revenues from external
customers attributable to an individual country, other than the United States,
were not material for disclosure. No single country other than the United States
has material long-lived assets. No customer represented 10% or more of Cabot's
revenues.
Revenues from external customers and long-lived asset information by
geographic area are summarized as follows:
<Table>
<Caption>
UNITED ALL FOREIGN CONSOLIDATED
STATES COUNTRIES TOTAL
------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
YEARS ENDED SEPTEMBER 30
2001
Revenues from external customers............................ $757 $913 $1,670
Long-lived assets(1)........................................ 397 536 933
2000
Revenues from external customers............................ $671 $903 $1,574
Long-lived assets(1)........................................ 391 537 928
1999
Revenues from external customers............................ $564 $841 $1,405
Long-lived assets(1)........................................ 525 638 1,163
</Table>
- ---------------
(1) Long-lived assets include total equity and other investments, (including
available-for-sale securities), net property, plant and equipment, and net
intangible assets.
56
<PAGE>
NOTE R UNAUDITED QUARTERLY FINANCIAL INFORMATION
Unaudited financial results, by quarter for the fiscal years ended
September 30, 2001 and 2000, are summarized below and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations. Certain items have been reclassified to reflect global
changes in Cabot's organization during the year. Results for fiscal 2000 reflect
Cabot Microelectronics Corporation and Cabot Liquefied Natural Gas as
discontinued operations.
<Table>
<Caption>
DECEMBER MARCH JUNE SEPTEMBER YEAR
-------- ----- ----- --------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 2001
Net sales.................................. $ 395 $458 $ 436 $ 381 $1,670
Cost of sales.............................. 305 339 316 276 1,237
Net income from continuing operations...... 28 28(a) 38(b) 27(c) 121
Gain on sale of discontinued business, net
of income taxes.......................... -- 3 -- -- 3
Income applicable to common shares......... $ 27 $ 30 $ 38 $ 26 $ 121
===== ===== ===== ===== ======
Income from continuing operations per
common share (diluted)................... $0.37 $0.36 $0.51 $0.38 1.62
Gain on sale of discontinued business per
common share (diluted)................... -- 0.04 -- -- 0.04
Income per common share (diluted).......... $0.37 $0.40 $0.51 $0.38 1.66
===== ===== ===== ===== ======
FISCAL 2000
Net sales.................................. $ 377 $397 $ 414 $ 387 $1,574
Cost of sales.............................. 268 291 311 294 1,164
Net income from continuing operations...... 31 28 38(d) 11(e) 108
Net income from discontinued operations.... 7 13 8 8 36
Gain on sale of discontinued business, net
of income taxes.......................... -- -- -- 309 309
Income applicable to common shares......... $ 37 $ 40 $ 45 $ 328 $ 450
===== ===== ===== ===== ======
Income from continuing operations per
common share (diluted)................... $0.41 $0.39 $0.51 $0.15 $ 1.46
Income from discontinued operations per
common share (diluted)................... 0.09 0.18 0.11 0.11 0.49
Gain on sale of discontinued business per
common share (diluted)................... -- -- -- 4.24 4.25
----- ----- ----- ----- ------
Income per common share (diluted).......... $0.50 $0.57 $0.62 $4.50 $ 6.20
===== ===== ===== ===== ======
</Table>
- ---------------
(a) Includes a charge related to the retirement of the Chief Executive Officer.
Included in the charge is $10 million relating to the accelerated vesting of
shares issued under the Long Term Incentive Compensation Plan and a $7
million cash payment.
(b) Includes a $3 million charge to accelerate the vesting of shares issued
under the Long Term Incentive Compensation Plan and a $1 million cash payout
related to the resignation of the Chief Financial Officer.
(c) Includes a $2 million charge related to the discontinuance of a toll
manufacturing agreement and benefits of a $1 million insurance recovery and
a $1 million recovery of costs related to one of the 2000 plant closings.
(d) Includes an $8 million insurance recovery.
(e) Includes an $18 million charge for the closure of two facilities, a $2
million environmental charge, and a benefit of a $2 million insurance
recovery.
57
<PAGE>
SELECTED FINANCIAL DATA -- FIVE YEAR SUMMARY
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
Revenues:
Net sales and other operating revenues.......... $1,670 $1,574 $1,405 $1,443 $1,450
Interest and dividend income.................... 28 6 4 5 7
------ ------ ------ ------ ------
Total revenues............................... 1,698 1,580 1,409 1,448 1,457
------ ------ ------ ------ ------
Costs and expenses:
Cost of sales................................... 1,237 1,164 991 985 1,011
Selling and administrative expenses............. 208 173 186 187 192
Research and technical service.................. 48 43 58 70 72
Interest expense................................ 32 33 39 36 37
Special items(a)................................ 21 10 26 85 18
Gain on sale of assets.......................... -- -- (10) (90) --
Other charges, net.............................. 2 -- 6 16 15
------ ------ ------ ------ ------
Total costs and expenses..................... 1,548 1,423 1,296 1,289 1,345
------ ------ ------ ------ ------
Income before income taxes........................ 150 157 113 159 112
Provision for income taxes........................ (42) (57) (41) (57) (40)
Equity in net income of affiliated companies...... 20 13 13 17 20
Minority interest................................. (7) (5) (3) (3) (2)
------ ------ ------ ------ ------
Income from continuing operations................. 121 108 82 116 90
Discontinued operations:(b)
Income from operations of discontinued
businesses, net of income taxes.............. -- 36 15 6 3
Gain on sale of business, net of income
taxes(c)..................................... 3 309 -- -- --
------ ------ ------ ------ ------
Net income................................... $ 124 $ 453 $ 97 $ 122 $ 93
------ ------ ------ ------ ------
COMMON SHARE DATA
Diluted Net Income:
Continuing operations........................... 1.62 1.46 1.11 1.53 1.15
Discontinued operations:
Income from operations of discontinued
businesses................................... -- 0.49 0.20 0.08 0.04
Gain on sale of business........................ 0.04 4.25 -- -- --
------ ------ ------ ------ ------
Net Income........................................ 1.66 6.20 1.31 1.61 1.19
------ ------ ------ ------ ------
Dividends......................................... 0.48 0.44 0.44 0.42 0.40
Stock prices(d)
High............................................ 41.35 21.97 18.05 22.31 16.72
Low............................................. 18.56 10.55 11.37 12.48 12.56
Close........................................... 39.90 18.19 13.63 14.31 15.46
Average diluted shares outstanding -- millions.... 74 73 73 75 77
Shares outstanding at year end -- millions........ 63 68 67 67 69
</Table>
58
<PAGE>
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED FINANCIAL POSITION
Total current assets.............................. $ 968 $1,190 $ 659 $ 619 $ 613
Net property, plant and equipment................. 807 806 1,024 978 922
Other assets...................................... 144 138 159 208 291
------ ------ ------ ------ ------
Total assets................................. $1,919 $2,134 $1,842 $1,805 $1,826
------ ------ ------ ------ ------
Total current liabilities......................... $ 291 $ 494 $ 450 $ 536 $ 543
Long-term debt.................................... 419 329 419 316 286
Other long-term liabilities and minority
interest........................................ 259 264 267 247 269
Stockholders' equity.............................. 950 1,047 706 706 728
------ ------ ------ ------ ------
Total liabilities and stockholders' equity... $1,919 $2,134 $1,842 $1,805 $1,826
------ ------ ------ ------ ------
Working capital................................... $ 677 $ 696 $ 209 $ 83 $ 70
------ ------ ------ ------ ------
SELECTED FINANCIAL RATIOS
Income from continuing operations as a percentage
of sales........................................ 7% 7% 6% 8% 6%
Return on average stockholders' equity............ 12% 58% 13% 16% 12%
Net debt to capitalization ratio.................. 9% (29)% 44% 43% 43%
</Table>
- ---------------
(a) Special Items for 2001 include a $2 million charge related to the
discontinuance of a toll manufacturing agreement and benefits of a $1
million insurance recovery and a $1 million recovery of costs related to one
of the 2000 plant closings. Additionally results include a $10 million and
$3 million charge to accelerate the vesting of the shares under the Long
Term Incentive Compensation Plan, and a $7 million and $1 million cash
payment related to the retirement of the Chief Executive Officer and the
resignation of the Chief Financial Officer, respectively. The 2000 special
items reflect an $18 million charge for the closure of two plants, a $2
million environmental charge, and a benefit of a $10 million insurance
recovery. Special items in 1999 include a $26 million charge for cost
reduction initiatives and capacity utilization and a $10 million gain from
the sale of 1 million shares of K N Energy, Inc. Special items for 1998
include a $60 million asset impairment charge in the Chemical Businesses, a
$25 million write-off of a tantalum ore recovery project in the Performance
Material segment and a $90 million gain from the sale of the 2 million
shares of K N Energy, Inc. Special items for 1997 include an $18 million
charge related to cost reduction programs in the Chemical Businesses and the
Performance Materials segment.
(b) The Liquefied Natural Gas (LNG) and Cabot Microelectronics segments are
presented as Discontinued Operations.
(c) Gain from the sale of the Liquefied Natural Gas (LNG) segment net of tax.
(d) The stock prices presented above are adjusted to reflect the fiscal 2000
stock dividend distribution of Cabot's ownership in Cabot Microelectronics.
59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cabot Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Cabot Corporation and its 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. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
October 23, 2001
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required regarding the executive officers of Cabot is
included at the end of Part I in the table following Item 4 captioned "Executive
Officers of the Registrant." Certain information required regarding the
directors of Cabot is contained in the Registrant's Proxy Statement for the 2002
Annual Meeting of Stockholders ("Proxy Statement") under the heading "Certain
Information Regarding Directors." Certain information required regarding the
failure of any person subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to timely file reports required by
Section 16(a) of the Exchange Act is contained in the Proxy Statement under the
heading "Compliance with Section 16(a) of the Exchange Act." All of such
information is incorporated herein by reference from the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required is contained in the Proxy Statement under the
heading "Executive Compensation." All of such information is incorporated herein
by reference from the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is contained in the Proxy Statement under the
heading "Beneficial Stock Ownership of Directors, Executive Officers and Persons
Owning More than Five Percent of Common Stock." All of such information is
incorporated herein by reference from the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is contained in the Proxy Statement under the
heading "Certain Relationships and Related Transactions." All of such
information is incorporated herein by reference from the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements. The following appear in Item 8 in this annual
report on Form 10-K for the fiscal year ended September 30, 2001:
<Table>
<Caption>
DESCRIPTION PAGE
----------- ----
<S> <C> <C>
(1) Consolidated Balance Sheets at September 30, 2001 and
2000........................................................ 25
(2) Consolidated Statements of Income for each of the three
fiscal years in the period ended September 30, 2001......... 27
(3) Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended September 30, 2001......... 28
(4) Consolidated Statements of Changes in Stockholders'
Equity...................................................... 29
(5) Notes to Consolidated Financial Statements.................. 31
(6) Report of Independent Accountants relating to the
Consolidated Financial Statements listed above.............. 60
</Table>
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 2001.
61
<PAGE>
(c) Exhibits. (Not included in copies of the Form 10-K sent to
stockholders.)
The exhibit numbers in the following list correspond to the numbers
assigned to such exhibits in the Exhibit Table of Item 601 of Regulation S-K.
The Company will furnish to any stockholder, upon written request, any exhibit
listed below, upon payment by such stockholder to the Company of the Company's
reasonable expenses in furnishing such exhibit.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
3(a) -- Certificate of Incorporation of Cabot Corporation restated
effective October 24, 1983, as amended February 14, 1985,
December 3, 1986, February 19, 1987, November 18, 1988,
November 24, 1995 and March 12, 1996 (incorporated herein by
reference to Exhibit 3(a) of Cabot's Annual Report on Form
10-K for the year ended September 30, 1996, file reference
1-5667, filed with the Commission on December 24, 1996).
3(b) -- The By-laws of Cabot Corporation as of January 11, 1991
(incorporated herein by reference to Exhibit 3(b) of Cabot's
Annual Report on Form 10-K for the year ended September 30,
1991, file reference 1-5667, filed with the Commission on
December 27, 1991).
4(a) -- Rights Agreement, dated as of November 10, 1995, between
Cabot Corporation and The First National Bank of Boston as
Rights Agent (incorporated herein by reference to Exhibit 1
of Cabot's Registration Statement on Form 8-A, file
reference 1-5667, filed with the Commission on November 13,
1995).
4(b)(i) -- Indenture, dated as of December 1, 1987, between Cabot
Corporation and The First National Bank of Boston, Trustee
(incorporated herein by reference to Exhibit 4 of Amendment
No. 1 to Cabot's Registration Statement on Form S-3,
Registration No. 33-18883, filed with the Commission on
December 10, 1987).
4(b)(ii) -- First Supplemental Indenture dated as of June 17, 1992, to
Indenture, dated as of December 1, 1987, between Cabot
Corporation and The First National Bank of Boston, Trustee
(incorporated by reference to Exhibit 4.3 of Cabot's
Registration Statement on Form S-3, Registration Statement
No. 33-48686, filed with the Commission on June 18, 1992).
4(b)(iii) -- Second Supplemental Indenture, dated as of January 31, 1997,
between Cabot Corporation and State Street Bank and Trust
Company, Trustee (incorporated herein by reference to
Exhibit 4 of Cabot's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1996, file reference
1-5667, filed with the Commission on February 14, 1997).
4(b)(iv) -- Third Supplemental Indenture, dated as of November 20, 1998,
between Cabot Corporation and State Street Bank and Trust
Company, Trustee (incorporated herein by reference to
Exhibit 4.1 of Cabot's Current Report on Form 8-K, dated
November 20, 1998, file reference 1-5667, filed with the
Commission on November 20, 1998).
10(a) -- Credit Agreement, dated as of July 13, 2001, among Cabot
Corporation, the banks listed therein and Fleet National
Bank, as Agent, filed herewith.
10(b)(i)* -- 1996 Equity Incentive Plan (incorporated herein by reference
to Exhibit 28 of Cabot's Registration Statement on Form S-8,
Registration No. 333-03683, filed with the Commission on May
14, 1996).
10(b)(ii)* -- 1999 Equity Incentive Plan (incorporated herein by reference
to Exhibit 10.1 of Cabot's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999, file reference
1-5667, filed with the Commission on May 17, 1999).
10(b)(iii)* -- Amendments to Cabot Corporation 1996 and 1999 Equity
Incentive Plans, dated May 12, 2000 (incorporated herein by
reference to Exhibit 10 of Cabot's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2000, file
reference 1-5667, filed with the Commission on May 15,
2000).
10(c) -- Note Purchase Agreement between John Hancock Mutual Life
Insurance Company, State Street Bank and Trust Company, as
trustee for the Cabot Corporation Employee Stock Ownership
Plan, and Cabot Corporation, dated as of November 15, 1988
(incorporated by reference to Exhibit 10(c) of Cabot's
Annual Report on Form 10-K for the year ended September 30,
1988, file reference 1-5667, filed with the Commission on
December 29, 1988).
</Table>
62
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10(d)(i)* -- Supplemental Cash Balance Plan (incorporated herein by
reference to Exhibit 10(e)(i) of Cabot's Annual Report on
Form 10-K for the year ended September 30, 1994, file
reference 1-5667, filed with the Commission on December 22,
1994).
10(d)(ii)* -- Supplemental Employee Stock Ownership Plan (incorporated
herein by reference to Exhibit 10(e)(ii) of Cabot's Annual
Report on Form 10-K for the year ended September 30, 1994,
file reference 1-5667, filed with the Commission on December
22, 1994).
10(d)(iii)* -- Supplemental Retirement Incentive Savings Plan (incorporated
herein by reference to Exhibit 10(e)(iii) of Cabot's Annual
Report on Form 10-K for the year ended September 30, 1994,
file reference 1-5667, filed with the Commission on December
22, 1994).
10(d)(iv)* -- Supplemental Employee Benefit Agreement with John G.L. Cabot
(incorporated herein by reference to Exhibit 10(f) of
Cabot's Annual Report on Form 10-K for the year ended
September 30, 1987, file reference 1-5667, filed with the
Commission on December 28, 1987).
10(d)(v)* -- Cabot Corporation Deferred Compensation Plan dated January
1, 1995 (incorporated herein by reference to Exhibit
10(e)(v) of Cabot's Annual Report on Form 10-K for the year
ended September 30, 1995, file reference 1-5667, filed with
the Commission on December 29, 1995).
10(d)(vi)* -- Amendment 1997-I to Cabot Corporation Deferred Compensation
Plan dated June 30, 1997 (incorporated herein by reference
to Exhibit 10(d)(vi) of Cabot's Annual Report on Form 10-K
for the year ended September 30, 1997, file reference
1-5667, filed with the Commission on December 24, 1997).
10(e) -- Group Annuity Contract No. GA-6121 between The Prudential
Insurance Company of America and State Street Bank and Trust
Company, dated June 28, 1991 (incorporated herein by
reference to Exhibit 10(h) of Cabot's Annual Report on Form
10-K for the year ended September 30, 1991, file reference
1-5667, filed with the Commission on December 27, 1991).
10(f)* -- Non-employee Directors' Stock Compensation Plan
(incorporated herein by reference to Exhibit A of Cabot's
Proxy Statement for its 1992 Annual Meeting of Stockholders,
file reference 1-5667, filed with the Commission on December
27, 1991).
10(g)(i) -- Asset Transfer Agreement, dated as of June 13, 1995, among
Cabot Safety Corporation, Cabot Canada Ltd., Cabot Safety
Limited, Cabot Corporation, Cabot Safety Holdings
Corporation and Cabot Safety Acquisition Corporation
(incorporated herein by reference to Exhibit 2(a) of Cabot
Corporation's Current Report on Form 8-K, dated July 11,
1995, file reference 1-5667, filed with the Commission July
26, 1995).
10(g)(ii) -- Stockholders' Agreement, dated as of July 11, 1995, among
Vestar Equity Partners, L.P., Cabot CSC Corporation, Cabot
Safety Holdings Corporation, Cabot Corporation and various
other parties thereto (incorporated herein by reference to
Exhibit 2(b) of Cabot Corporation's Current Report on Form
8-K, dated July 11, 1995, file reference 1-5667, filed with
the Commission July 26, 1995).
10(h)* -- Cabot Corporation Senior Management Severance Protection
Plan, effective January 9, 1998 (incorporated herein by
reference to exhibit 10(a) of Cabot's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1997,
file reference 1-5667, filed with the Commission February
17, 1998).
10(i)* -- Cabot Corporation Key Employee Severance Protection Plan,
effective January 9, 1998 (incorporated herein by reference
to exhibit 10(b) of Cabot's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1997, file
reference 1-5667, filed with the Commission February 17,
1998).
10(j)* -- Cabot Corporation Short-Term Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10 of Cabot's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001, file reference 1-5667, filed with the
Commission on May 14, 2001).
10(k) -- Stock Purchase and Sale Agreement, dated as of July 13,
2000, by and among Cabot Business Trust, Cabot Corporation,
Tractebel, Inc. and Tractebel, S.A. (incorporated herein by
reference to Exhibit 2 of Cabot Corporation's Report on Form
8-K dated October 2, 2000, file reference 1-5667, filed with
the Commission on October 3, 2000).
</Table>
63
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10(l) -- Revolving Credit Agreement dated as of November 10, 2000
among Cabot Finance B.V., Fleet National Bank, Commerzbank
AG, and other lending institutions listed therein, including
First Amendment to Revolving Credit Agreement (incorporated
herein by reference to Exhibit 10 of Cabot's Quarterly
Report on Form 10-Q for the quarterly period ended December
31, 2000, file reference 1-5667, filed with the Commission
on February 14, 2001).
12 -- Statement Re: Computation of Ratios of Earnings to Fixed
Charges, filed herewith.
21 -- List of Significant Subsidiaries, filed herewith.
23 -- Consent of PricewaterhouseCoopers LLP, filed herewith.
24 -- Power of attorney for signing of this Annual Report on Form
10-K, filed herewith.
</Table>
- ---------------
* Management contract or compensatory plan or arrangement.
(d) Schedules. The Schedules have been omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
64
<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.
CABOT CORPORATION (Registrant)
By: /s/ KENNETT F. BURNES
------------------------------------
KENNETT F. BURNES,
Chairman of the Board, President
and Chief Executive Officer
Date: December 19, 2001
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C> <C>
/s/ KENNETT F. BURNES Director, Chairman of the December 19, 2001
------------------------------------------------ Board, President and Chief
KENNETT F. BURNES Executive Officer
/s/ MARTIN L. COFFEE Assistant Controller December 19, 2001
------------------------------------------------ (acting principal financial
MARTIN L. COFFEE and accounting officer)
* Director December 19, 2001
------------------------------------------------
JOHN G.L. CABOT
* Director December 19, 2001
------------------------------------------------
JOHN S. CLARKESON
* Director December 19, 2001
------------------------------------------------
ARTHUR L. GOLDSTEIN
* Director December 19, 2001
------------------------------------------------
ROBERT P. HENDERSON
* Director December 19, 2001
------------------------------------------------
GAUTAM S. KAJI
* Director December 19, 2001
------------------------------------------------
RODERICK C.G. MACLEOD
* Director December 19, 2001
------------------------------------------------
JOHN H. MCARTHUR
* Director December 19, 2001
------------------------------------------------
JOHN F. O'BRIEN
</Table>
65
<PAGE>
<Table>
<Caption>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C> <C>
* Director December 19, 2001
------------------------------------------------
RONALDO H. SCHMITZ
* Director December 19, 2001
------------------------------------------------
LYDIA W. THOMAS
* Director December 19, 2001
------------------------------------------------
MARK S. WRIGHTON
*By: /s/ JOHN P. MCGANN
------------------------------------------
JOHN P. MCGANN
AS ATTORNEY-IN-FACT
</Table>
66
<PAGE>
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
3(a) -- Certificate of Incorporation of Cabot Corporation restated
effective October 24, 1983, as amended February 14, 1985,
December 3, 1986, February 19, 1987, November 18, 1988,
November 24, 1995 and March 12, 1996 (incorporated herein by
reference to Exhibit 3(a) of Cabot's Annual Report on Form
10-K for the year ended September 30, 1996, file reference
1-5667, filed with the Commission on December 24, 1996).
3(b) -- The By-laws of Cabot Corporation as of January 11, 1991
(incorporated herein by reference to Exhibit 3(b) of Cabot's
Annual Report on Form 10-K for the year ended September 30,
1991, file reference 1-5667, filed with the Commission on
December 27, 1991).
4(a) -- Rights Agreement, dated as of November 10, 1995, between
Cabot Corporation and The First National Bank of Boston as
Rights Agent (incorporated herein by reference to Exhibit 1
of Cabot's Registration Statement on Form 8-A, file
reference 1-5667, filed with the Commission on November 13,
1995).
4(b)(i) -- Indenture, dated as of December 1, 1987, between Cabot
Corporation and The First National Bank of Boston, Trustee
(incorporated herein by reference to Exhibit 4 of Amendment
No. 1 to Cabot's Registration Statement on Form S-3,
Registration No. 33-18883, filed with the Commission on
December 10, 1987).
4(b)(ii) -- First Supplemental Indenture dated as of June 17, 1992, to
Indenture, dated as of December 1, 1987, between Cabot
Corporation and The First National Bank of Boston, Trustee
(incorporated by reference to Exhibit 4.3 of Cabot's
Registration Statement on Form S-3, Registration Statement
No. 33-48686, filed with the Commission on June 18, 1992).
4(b)(iii) -- Second Supplemental Indenture, dated as of January 31, 1997,
between Cabot Corporation and State Street Bank and Trust
Company, Trustee (incorporated herein by reference to
Exhibit 4 of Cabot's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1996, file reference
1-5667, filed with the Commission on February 14, 1997).
4(b)(iv) -- Third Supplemental Indenture, dated as of November 20, 1998,
between Cabot Corporation and State Street Bank and Trust
Company, Trustee (incorporated herein by reference to
Exhibit 4.1 of Cabot's Current Report on Form 8-K, dated
November 20, 1998, file reference 1-5667, filed with the
Commission on November 20, 1998).
10(a) -- Credit Agreement, dated as of July 13, 2001, among Cabot
Corporation, the banks listed therein and Fleet National
Bank, as Agent, filed herewith.
10(b)(i)* -- 1996 Equity Incentive Plan (incorporated herein by reference
to Exhibit 28 of Cabot's Registration Statement on Form S-8,
Registration No. 333-03683, filed with the Commission on May
14, 1996).
10(b)(ii)* -- 1999 Equity Incentive Plan (incorporated herein by reference
to Exhibit 10.1 of Cabot's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999, file reference
1-5667, filed with the Commission on May 17, 1999).
10(b)(iii)* -- Amendments to Cabot Corporation 1996 and 1999 Equity
Incentive Plans, dated May 12, 2000 (incorporated herein by
reference to Exhibit 10 of Cabot's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2000, file
reference 1-5667, filed with the Commission on May 15,
2000).
10(c) -- Note Purchase Agreement between John Hancock Mutual Life
Insurance Company, State Street Bank and Trust Company, as
trustee for the Cabot Corporation Employee Stock Ownership
Plan, and Cabot Corporation, dated as of November 15, 1988
(incorporated by reference to Exhibit 10(c) of Cabot's
Annual Report on Form 10-K for the year ended September 30,
1988, file reference 1-5667, filed with the Commission on
December 29, 1988).
10(d)(i)* -- Supplemental Cash Balance Plan (incorporated herein by
reference to Exhibit 10(e)(i) of Cabot's Annual Report on
Form 10-K for the year ended September 30, 1994, file
reference 1-5667, filed with the Commission on December 22,
1994).
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10(d)(ii)* -- Supplemental Employee Stock Ownership Plan (incorporated
herein by reference to Exhibit 10(e)(ii) of Cabot's Annual
Report on Form 10-K for the year ended September 30, 1994,
file reference 1-5667, filed with the Commission on December
22, 1994).
10(d)(iii)* -- Supplemental Retirement Incentive Savings Plan (incorporated
herein by reference to Exhibit 10(e)(iii) of Cabot's Annual
Report on Form 10-K for the year ended September 30, 1994,
file reference 1-5667, filed with the Commission on December
22, 1994).
10(d)(iv)* -- Supplemental Employee Benefit Agreement with John G.L. Cabot
(incorporated herein by reference to Exhibit 10(f) of
Cabot's Annual Report on Form 10-K for the year ended
September 30, 1987, file reference 1-5667, filed with the
Commission on December 28, 1987).
10(d)(v)* -- Cabot Corporation Deferred Compensation Plan dated January
1, 1995 (incorporated herein by reference to Exhibit
10(e)(v) of Cabot's Annual Report on Form 10-K for the year
ended September 30, 1995, file reference 1-5667, filed with
the Commission on December 29, 1995).
10(d)(vi)* -- Amendment 1997-I to Cabot Corporation Deferred Compensation
Plan dated June 30, 1997 (incorporated herein by reference
to Exhibit 10(d)(vi) of Cabot's Annual Report on Form 10-K
for the year ended September 30, 1997, file reference
1-5667, filed with the Commission on December 24, 1997).
10(e) -- Group Annuity Contract No. GA-6121 between The Prudential
Insurance Company of America and State Street Bank and Trust
Company, dated June 28, 1991 (incorporated herein by
reference to Exhibit 10(h) of Cabot's Annual Report on Form
10-K for the year ended September 30, 1991, file reference
1-5667, filed with the Commission on December 27, 1991).
10(f)* -- Non-employee Directors' Stock Compensation Plan
(incorporated herein by reference to Exhibit A of Cabot's
Proxy Statement for its 1992 Annual Meeting of Stockholders,
file reference 1-5667, filed with the Commission on December
27, 1991).
10(g)(i) -- Asset Transfer Agreement, dated as of June 13, 1995, among
Cabot Safety Corporation, Cabot Canada Ltd., Cabot Safety
Limited, Cabot Corporation, Cabot Safety Holdings
Corporation and Cabot Safety Acquisition Corporation
(incorporated herein by reference to Exhibit 2(a) of Cabot
Corporation's Current Report on Form 8-K, dated July 11,
1995, file reference 1-5667, filed with the Commission July
26, 1995).
10(g)(ii) -- Stockholders' Agreement, dated as of July 11, 1995, among
Vestar Equity Partners, L.P., Cabot CSC Corporation, Cabot
Safety Holdings Corporation, Cabot Corporation and various
other parties thereto (incorporated herein by reference to
Exhibit 2(b) of Cabot Corporation's Current Report on Form
8-K, dated July 11, 1995, file reference 1-5667, filed with
the Commission July 26, 1995).
10(h)* -- Cabot Corporation Senior Management Severance Protection
Plan, effective January 9, 1998 (incorporated herein by
reference to exhibit 10(a) of Cabot's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1997,
file reference 1-5667, filed with the Commission February
17, 1998).
10(i)* -- Cabot Corporation Key Employee Severance Protection Plan,
effective January 9, 1998 (incorporated herein by reference
to exhibit 10(b) of Cabot's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1997, file
reference 1-5667, filed with the Commission February 17,
1998).
10(j)* -- Cabot Corporation Short-Term Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10 of Cabot's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001, file reference 1-5667, filed with the
Commission on May 14, 2001).
10(k) -- Stock Purchase and Sale Agreement, dated as of July 13,
2000, by and among Cabot Business Trust, Cabot Corporation,
Tractebel, Inc. and Tractebel, S.A. (incorporated herein by
reference to Exhibit 2 of Cabot Corporation's Report on Form
8-K dated October 2, 2000, file reference 1-5667, filed with
the Commission on October 3, 2000).
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10(l) -- Revolving Credit Agreement dated as of November 10, 2000
among Cabot Finance B.V., Fleet National Bank, Commerzbank
AG, and other lending institutions listed therein, including
First Amendment to Revolving Credit Agreement (incorporated
herein by reference to Exhibit 10 of Cabot's Quarterly
Report on Form 10-Q for the quarterly period ended December
31, 2000, file reference 1-5667, filed with the Commission
on February 14, 2001).
12 -- Statement Re: Computation of Ratios of Earnings to Fixed
Charges, filed herewith.
21 -- List of Significant Subsidiaries, filed herewith.
23 -- Consent of PricewaterhouseCoopers LLP, filed herewith.
24 -- Power of attorney for signing of this Annual Report on Form
10-K, filed herewith.
</Table>
- ---------------
* Management contract or compensatory plan or arrangement.
<PAGE>
SKU# 0928-10K-02
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(A)
<SEQUENCE>3
<FILENAME>b41315ccex10-a.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10(a)
CREDIT AGREEMENT
dated as of
July 13, 2001
among
CABOT CORPORATION,
The Banks Listed Herein
and
FLEET NATIONAL BANK,
as Agent
with
FLEET SECURITIES, INC., as Lead Arranger
SALOMON SMITH BARNEY INC., as Co-Lead Arranger
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS .................................................. 1
Section 1.1. Definitions ............................................... 1
SECTION 1.2. Accounting Terms and Determinations ....................... 13
SECTION 1.3. Types of Borrowings ....................................... 13
ARTICLE II THE CREDITS 13
Section 2.1. Commitments to Lend During Revolving Credit Period ........ 13
SECTION 2.2. Notice of Committed Borrowings ............................ 14
SECTION 2.3. Money Market Borrowings ................................... 14
SECTION 2.4. Notice to Banks; Funding of Loans ......................... 17
SECTION 2.5. Notes ..................................................... 18
SECTION 2.6. Maturity of Loans ......................................... 19
SECTION 2.7. Interest Rates ............................................ 19
SECTION 2.8. Fees ...................................................... 20
SECTION 2.9. Optional Termination or Reduction of Commitments .......... 21
SECTION 2.10. Mandatory Termination of Commitments ...................... 21
SECTION 2.11. Optional Prepayments ...................................... 21
SECTION 2.12. General Provisions as to Payments ......................... 22
SECTION 2.13. Funding Losses ............................................ 22
SECTION 2.14. Computation of Interest and Fees .......................... 23
SECTION 2.15. Taxes ..................................................... 23
SECTION 2.16. Regulation D Compensation ................................. 24
SECTION 2.17. Letter of Credits ......................................... 25
Section 2.17.1. Commitment Issue Letters of Credit .................. 25
Section 2.17.2. Letter of Credit Applications ....................... 25
Section 2.17.3. Terms of Letters of Credit .......................... 25
Section 2.17.4. Reimbursement Obligations of Banks .................. 26
Section 2.17.5. Participations of Banks ............................. 26
SECTION 2.18. Reimbursement Obligation of the Borrower .................. 26
SECTION 2.19. Letter of Credit Payments ................................. 27
SECTION 2.20. Obligations Absolute ...................................... 27
SECTION 2.21. Reliance by Issuer ........................................ 28
SECTION 2.22. Letter of Credit Fee ...................................... 28
ARTICLE III CONDITIONS ................................................... 28
SECTION 3.1. Effectiveness ............................................. 28
SECTION 3.2. Borrowings ................................................ 30
ARTICLE IV REPRESENTATIONS AND WARRANTIES ............................... 30
SECTION 4.1. Corporate Existence and Power ............................. 30
SECTION 4.2. Corporate and Governmental Authorization;
No Contravention .......................................... 30
<PAGE>
-3-
SECTION 4.3. Binding Effect ............................................ 31
SECTION 4.4. Financial Information ..................................... 31
SECTION 4.5. Litigation ................................................ 31
SECTION 4.6. Compliance with ERISA ..................................... 31
SECTION 4.7. Environmental Matters ..................................... 32
SECTION 4.8. Taxes ..................................................... 32
SECTION 4.9. Subsidiaries .............................................. 32
SECTION 4.10. Not an Investment Company ................................. 32
SECTION 4.11. Full Disclosure ........................................... 32
ARTICLE V COVENANTS .................................................... 33
SECTION 5.1. Information ............................................... 33
SECTION 5.2. Payment of Obligations .................................... 35
SECTION 5.3. Maintenance of Property; Insurance ........................ 35
SECTION 5.4. Conduct of Business and Maintenance of Existence .......... 36
SECTION 5.5. Compliance with Laws ...................................... 36
SECTION 5.6. Inspection of Property, Books and Records ................. 36
SECTION 5.7. Debt ...................................................... 36
SECTION 5.8. Debt Service .............................................. 37
SECTION 5.9. Investments ............................................... 37
SECTION 5.10. Negative Pledge ........................................... 37
SECTION 5.11. Consolidations and Mergers ................................ 38
SECTION 5.12. Sales of Assets ........................................... 39
SECTION 5.13. Use of Proceeds ........................................... 39
SECTION 5.14. Transactions with Affiliates .............................. 39
ARTICLE VI DEFAULTS ..................................................... 39
SECTION 6.1. Events of Default ......................................... 39
SECTION 6.2. Notice of Default ......................................... 41
SECTION 6.3 Remedies .................................................. 41
ARTICLE VII THE AGENT .................................................... 42
SECTION 7.1. Appointment and Authorization ............................. 42
SECTION 7.2. Agent and Affiliates ...................................... 42
SECTION 7.3. Action by Agent ........................................... 42
SECTION 7.4. Consultation with Experts ................................. 43
SECTION 7.5. Liability of Agent ........................................ 43
SECTION 7.6. Indemnification ........................................... 43
SECTION 7.7. Credit Decision ........................................... 43
SECTION 7.8. Successor Agent ........................................... 43
SECTION 7.9. Agent's Fee ............................................... 44
SECTION 7.10. Delinquent Bank ........................................... 44
ARTICLE VIII CHANGE IN CIRCUMSTANCES ...................................... 44
SECTION 8.1. Basis for Determining Interest Rate Inadequate
or Unfair ................................................. 44
<PAGE>
-4-
SECTION 8.2. Illegality ................................................ 45
SECTION 8.3. Increased Cost and Reduced Return.......................... 45
SECTION 8.4. Base Rate Loans Substituted for Affected Fixed
Rate Loans ................................................ 47
SECTION 8.5. Substitution of Bank ...................................... 47
ARTICLE IX MISCELLANEOUS ................................................ 47
SECTION 9.1. Notices ................................................... 48
SECTION 9.2. No Waivers ................................................ 48
SECTION 9.3. Expenses: Documentary Taxes; Indemnification .............. 48
SECTION 9.4. Set-offs .................................................. 48
SECTION 9.5. Amendments and Waivers .................................... 49
SECTION 9.6. Successors and Assigns .................................... 49
SECTION 9.7. Collateral ................................................ 53
SECTION 9.8. Governing Law; Submission to Jurisdiction ................. 53
SECTION 9.9. Counterparts: Integration ................................ 53
SECTION 9.10. Waiver of Jury Trial ...................................... 54
SECTION 9.11 Severability .............................................. 54
<PAGE>
-5-
EXHIBITS
--------
Exhibit A Note
EXHIBIT B Form of Money Market Quote Request
EXHIBIT C Form of Invitation for Money Market Quotes
EXHIBIT D Form of Money Market Quote
EXHIBIT E Legal Opinion
EXHIBIT G Assignment and Assumption Agreement
EXHIBIT H Instrument of Accession
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of July 13, 2001 among CABOT CORPORATION, the Banks
listed on the signature pages hereof and FLEET NATIONAL BANK, as Agent.
The parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Acceding Bank" has the meaning set forth in Section 9.6(d).
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any Person (other than the Borrower, a Consolidated Subsidiary or an Equity
Affiliate) which is controlled by or is under common control with a Controlling
Person. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means Fleet National Bank in its capacity as agent for the
Banks hereunder, and its permitted successors in such capacity.
"Agent's Office" means the Agent's office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"Arrangers" means the Lead Arranger and the Co-Lead Arranger.
<PAGE>
-2-
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day. Changes in the Base Rate resulting from changes in the
Prime Rate shall take place immediately and without notice or demand of any
kind.
"Base Rate Borrowing" has the meaning set forth in Section 1.3.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Committed Borrowing or
pursuant to Article VIII.
"Borrower" means Cabot Corporation, a Delaware corporation.
"Borrower's 2000 Form 10-K" means the Borrower's annual report on Form
10-K for its 2000 fiscal year, as filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
"Borrowing" has the meaning set forth in Section 1.3.
"Co-Lead Arranger" means Citibank Salomon Smith Barney.
"Commitment" means, with respect to each Bank, the amount set forth on
SCHEDULE 1 hereto as the amount of such Bank's commitment to make Committed
Loans to, and to participate in the issuance, extension and renewal of Letters
of Credit for the account of the Borrower, as the same may be modified pursuant
to Section 9.6(d) hereof, and as the same may be reduced from time to time; or
if such commitment is terminated pursuant to the provisions hereof, zero.
"Committed Borrowing" has the meaning set forth in Section 1.3.
"Commitment Percentage" means, with respect to each Bank, the
percentage set forth on SCHEDULE 1 hereto as such Bank's percentage of the
aggregate Commitments of all the Banks.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.1.
"Consolidated Debt" means at any date the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
"Consolidated EBITDA" means, with respect to any fiscal period, an
amount equal to the sum of (a) Consolidated Net Income of the Borrower and its
Consolidated Subsidiaries for such fiscal period, PLUS (b) in each case to the
extent deducted in the calculation of Consolidated Net Income and without
duplication (i) tax expense for such period, PLUS (ii) Consolidated Total
Interest Expense paid or accrued during such period, PLUS (iii) other noncash
charges for such period, PLUS (iv) depreciation and amortization for such
period, and MINUS (c) to the extent
<PAGE>
-3-
added in calculating Consolidated Net Income, and without duplication, all
noncash gains (including income tax benefits) for such period, all as determined
in accordance with generally accepted accounting principles.
"Consolidated Net Income (or Deficit)" means the consolidated net
income (or deficit) of the Borrower and its Consolidated Subsidiaries, after
deduction of all expenses, taxes and other proper charges, determined in
accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary nonrecurring items of income.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which are consolidated with those of the Borrower in its
consolidated financial statements prepared as of such date.
"Consolidated Tangible Net Worth" means at any date (i) the
consolidated stockholders' equity of the Borrower as of such date (calculated
excluding adjustments to translate foreign assets and liabilities for changes in
foreign exchange rates made in accordance with Financial Accounting Standards
Board Statement No. 52 and 133), MINUS (ii) to the extent reflected in
determining such consolidated stockholders' equity at such date, the amount of
consolidated Intangible Assets of the Borrower and its Consolidated
Subsidiaries.
"Consolidated Total Interest Expense" means, for any period, the
aggregate amount of interest required to be paid or accrued by the Borrower and
its Consolidated Subsidiaries during such period on all Debt of the Borrower and
its Consolidated Subsidiaries outstanding during all or any part of such fiscal
period, whether such interest was or is required to be reflected as an item of
expense or capitalized, including payments consisting of interest in respect of
any capitalized lease, and including commitment fees, agency fees, facility
fees, utilization fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money.
"Debt" of any Person means at any date, whether or not contingent, but
without duplication, (i) all obligations of such Person for borrowed money, (ii)
all obligations of such Person evidenced by bonds, debentures, promissory notes
or other similar instruments, (iii) every reimbursement obligation of the
Borrower with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of the Borrower, (iv) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (v) all obligations
of such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (vi) every obligation of such Person under any
lease of goods or other property, whether real or personal, which is treated as
on operating lease under generally accepted accounting principles and as a loan
or financing for U.S. income tax purposes, (vii) all Debt of others secured by a
Lien on any asset of such Person, whether or not such Debt is assumed by such
Person, (viii) all Debt of others Guaranteed by such Person, and (ix) all sales
by the Borrower of (a) accounts or general intangibles for money due or to
become due, (b) chattel paper, instruments or documents creating or evidencing a
right to payment of money or (c) other receivables (collectively,
"receivables"), whether pursuant to a purchase facility or otherwise, other than
in connection with the disposition of the business operations of the Borrower
relating thereto or a disposition of defaulted receivables for collection and
not as a financing arrangement, and together with
<PAGE>
-4-
any obligation of the Borrower to pay discount, interest, fees, indemnities,
penalties, recourse, expenses or other amounts in connection therewith.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Delinquent Lender" has the meaning set forth in Section 7.10.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City or Boston, Massachusetts
are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.1.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws (including case law), regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions relating to
the environment or to emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
"Equity Affiliate" means at any date any corporation or other entity
(which may be a Subsidiary but not a Consolidated Subsidiary) of which
securities or other ownership interests are at the time directly or indirectly
owned by the Borrower and accounted for under the equity method of accounting.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Borrowing" has the meaning set forth in Section 1.3.
<PAGE>
-5-
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London or such other eurodollar interbank market as may be
selected by the Agent in its sole discretion acting in good faith.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.7(c).
"Euro-Dollar Reference Banks" means the principal London office of
Fleet National Bank, or any successor Euro-Dollar Reference Bank appointed as
such pursuant to Section 2.7(h).
"Euro-Dollar Reserve Percentage" means for any day for any Bank that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the effective reserve requirement for such Bank as
determined in good faith by such Bank in respect of "Eurocurrency liabilities"
(or in respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of any Bank to United States residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Existing Credit Agreement" means the Credit Agreement dated as of
January 3, 1997, as amended, among Cabot Corporation, the banks listed therein
and Morgan Guaranty Trust Company of New York, as Agent.
"Facility Fee Rate" means (i) .10 of 1% per annum for any day on which
Investment Level I Status exists, (ii) .125 of 1% per annum for any day on which
Investment Level II Status exists, (iii) .15 of 1% per annum for any day on
which Investment Level III Status exists, (iv) .20 of 1% per annum for any day
on which Investment Level IV Status exists, and (v) .30 of 1% per annum for any
day on which Investment Level V Status exists.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
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transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to the Agent on such day on such
transactions from the fund brokers of recognized standing selected by the Agent.
"Fee Letter" means that certain letter dated on or prior to the date
hereof between the Agent and the Borrower.
"Fronting Fee" has the meaning set forth in Section 2.22.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt (whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Debt of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part), PROVIDED that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business and
letters or other undertakings which state that the Borrower or a Consolidated
Subsidiary will maintain its ownership of another Person but which do not
include any obligation related to the financial condition of such other Person.
The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Instrument of Accession" has the meaning set forth in Section 9.6(d).
"Intangible Assets" means the amount of (i) all write-ups of assets
(other than write-ups of assets of a going concern business made within twelve
months after the acquisition of such business); (ii) all Investments in Persons
other than (x) Consolidated Subsidiaries and (y) Equity Affiliates (A) in which
the Borrower directly or indirectly owns equity securities or other comparable
ownership interests of not less than 30% and (B) which are engaged in the same
general business as the Borrower or any of its Subsidiaries or engaged in a
business incidental or related thereto; and (iii) all unamortized debt discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or developmental expenses and other
assets treated as intangible assets under generally accepted accounting
principles.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
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(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar Business
Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after
the date determined pursuant to clause (y) of the definition of
Termination Date shall end on the date so determined.
(2) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending on the last day of the
calendar quarter; PROVIDED that:
(a) any Interest Period which would otherwise end on a
day which is not a Domestic Business Day shall be extended to the next
succeeding Domestic Business Day; and
(b) any Interest Period which would otherwise end after
the date determined pursuant to clause (y) of the definition of
Termination Date shall end on the date so determined.
(3) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter (but not less than one month) as the Borrower may elect in accordance
with Section 2.3; PROVIDED that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar Business
Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall, subject to clause (c) below, end on
the last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after
the date determined pursuant to clause (y) of the definition of
Termination Date shall end on the date so determined.
(4) with respect to each Money Market Absolute Rate Borrowing, the
period commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 30 days) as the Borrower may elect in accordance
with Section 2.3; PROVIDED that:
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(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after
the date determined pursuant to clause (y) of the definition of
Termination Date shall end on the date so determined.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, demand or time deposit or otherwise.
"Investment Level I Status" exists at any date if, at such date, (x)
the Borrower's outstanding senior unsecured long term debt securities are (i)
rated A- or better by S&P or (ii) rated A3 or better by Moody's.
"Investment Level II Status" exists at any date if, at such date, (x)
the Borrower's outstanding senior unsecured long-term debt securities are (i)
rated BBB+ or better by S&P OR (ii) rated Baa1 or better by Moody's and (y)
Investment Level I Status does not exist.
"Investment Level III Status" exists at any date if, at such date, (x)
the Borrower's outstanding senior unsecured long-term debt securities are (i)
rated BBB or better by S&P OR (ii) rated Baa2 or better by Moody's and (y)
neither Investment Level I Status nor Investment Level II Status exists.
"Investment Level IV Status" exists at any date, if at such date (x)
the Borrower's outstanding senior unsecured long-term debt securities are (i)
rated BBB- or better by S&P OR (ii) rated Baa3 or better by Moody's AND (y) none
of Investment Level I Status, Investment Level II Status nor Investment Level
III Status exists.
"Investment Level V Status" exists at any date if, at such date, none
of Level I Status, Level II Status, Level III Status nor Level IV Status exists.
"Investment Level Status" means, as at any date of determination, the
Borrower's rating of Investment Level I Status, Investment Level II Status,
Investment Level III Status, Investment Level IV Status or Investment Level V
Status. In determining such status, in the event of a split debt rating of (a)
only one level between S&P and Moody's, the higher rating shall apply, and (b)
more than one level between S&P and Moody's, the rating level that is one level
above the lowest level shall apply. In addition, in the event that S&P or
Moody's changes its debt rating designations, definitions or symbols, the
Borrower and the Required Banks shall agree as to the exact application of such
new debt rating terminology to the application of this definition, taking into
account the explanation of such new rating terminology by S&P or Moody's, as the
case may be, and its comparability to the debt rating referred to in the
definitions of "Investment Level Status I", Investment Level Status II",
"Investment Level Status III", "Investment Level Status IV" and "Investment
Level Status V".
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"Lead Arranger" means Fleet Securities, Inc.
"Letter of Credit" has the meaning set forth in Section 2.17.1.
"Letter of Credit Application" has the meaning set forth in Section
2.17.1.
"Letter of Credit Fee" has the meaning set forth in Section 2.22.
"Letter of Credit Participation" has the meaning set forth in Section
2.17.4.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge or security interest in respect of such asset. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease (but not
operating lease) or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit and the Fee Letter.
"London Interbank Offered Rate" has the meaning set forth in Section
2.7(b).
"Margin Stock" means margin stock within the meaning of Regulation U.
"Material Debt" means (x) Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding $50,000,000
or (y) Debt of the Borrower (other than the Notes) and/or one or more of its
Consolidated Subsidiaries, arising in one or more related or unrelated
transactions, in an aggregate principal amount exceeding $20,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities at such time in excess of $20,000,000.
"Maximum Drawing Amount" means the maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
"Money Market Absolute Rate" has the meaning set forth in Section
2.3(d).
"Money Market Absolute Rate Borrowing" has the meaning set forth in
Section 1.3.
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"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Borrowing" has the meaning set forth in Section 1.3.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; PROVIDED that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Borrowing" has the meaning set forth in Section
1.3.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to
a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.1).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.3(d).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.3.
"Moody's" means Moody's Investors Services, Inc.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined
in Section 2.2) or a Notice of Money Market Borrowing (as defined in Section
2.3(f)).
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.6(b) .
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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"Person" means an individual, a corporation, a partnership, a limited
liability company, a limited liability partnership, an association, a trust or
any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the variable rate of interest so designated from
time to time by Fleet National Bank in Boston, Massachusetts from time to time
as its "prime rate", such rate being a reference rate and not necessarily
representing the lowest or best rate being charged to any customer.
"Receivables Transaction" means any transaction involving the
nonrecourse sale of accounts receivable and related rights of the Borrower for
cash to a specific purpose entity (which may be a Subsidiary or Affiliate of the
Borrower) in connection with the securitization thereof.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Obligation" means the Borrower's obligation to reimburse
the Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 2.18.
"Required Banks" means at any time Banks having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing more than 50% of the aggregate unpaid
principal amount of the Loans, PROVIDED, HOWEVER, that if any Bank shall be a
Delinquent Lender at such time then, for so long as such Bank is a Delinquent
Lender, "Required Banks" means Banks (excluding all Delinquent Lenders) having
more than 50% or the amount of the Commitments of such Banks or, if the
Commitments shall have been terminated, holding Notes evidencing more than 50%
of the aggregate unpaid principal amount of the Loans owing to such Banks (other
than a Delinquent Lender).
"Revolving Credit Period" means the period from and including the
Effective Date to and including the Termination Date.
"S&P" means Standard & Poor's Ratings Group.
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"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Temporary Cash Investment" means any Investment in (i) securities of
the U.S. Treasury; (ii) securities of agencies of the U.S. Government; (iii)
commercial paper, with a rating in the United States of A-1 by S&P and a rating
in the United States of P-1 by Moody's or better; or in the case of a foreign
issuer, an equivalent rating by another recognized credit rating service; (iv)
bankers' acceptances, certificates of deposit, and time deposits issued by any
Bank or by a bank having capital in excess of $1,000,000,000; (v) repurchase
agreements with a "primary" dealer of the Federal Reserve or a bank described in
clause (iv) of this definition which is collateralized by obligations of the
U.S. Government or federal agencies with a value not to be below 102% of the
face value of the repurchase agreement; (vi) municipal obligations with a rating
of MIG-1 by S&P and a rating of SP-1 by Moody's or better, (vii) preferred stock
which is rated A by S&P or A2 by Moody's or better and whose dividend rate is
set no longer than every 49 days through a Dutch auction process and (viii)
money market funds substantially all of whose investments listed in the relevant
prospectus are of the types listed in the foregoing items (i) through (vii).
"Termination Date" means the earlier of (x) the date on which the
Commitments are terminated pursuant to Section 2.9(i) hereof and (y) July 13,
2006, or, if July 13, 2006 is not a Euro-Dollar Business Day, the next preceding
Euro-Dollar Business Day.
"Total Capitalization" means, at any date, Consolidated Debt PLUS the
consolidated stockholders' equity of the Borrower (calculated excluding
adjustments to translate foreign assets and liabilities for changes in foreign
exchange rates made in accordance with Financial Accounting Standards Board
Statement No. 52 and 133), all as would be presented according to generally
accepted accounting principles in a consolidated balance sheet of the Borrower
as of such date.
"Total Commitment" means the sum of the Commitments of the Lenders, as
in effect from time to time.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all accrued benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits (excluding any accrued but unpaid contributions), all determined
as of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"Uniform Customs" means, with respect to any Letter of Credit, the
Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 or any successor version
thereto adopted by the Agent in the ordinary course of its business as a letter
of credit issuer and in effect at the time of issuance of such Letter of Credit.
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"Unpaid Reimbursement Obligation" means any Reimbursement Obligation
for which the Borrower does not reimburse the Agent and the Banks on the date
specified in, and in accordance with Section 2.18.
"Utilization Fee" has the meaning set forth in Section 2.8(b).
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks.
SECTION 1.3. TYPES OF BORROWINGS. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article II on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (i.e., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans, a "Base Rate Borrowing" is a Borrowing comprised
of Base Rate Loans, a "Money Market LIBOR Borrowing" is a Borrowing comprised of
Money Market LIBOR Loans, and a "Money Market Absolute Rate Borrowing" is a
Borrowing comprised of Money Market Absolute Rate Loans) or by reference to the
provisions of Article II under which participation therein is determined (i.e.,
a "Committed Borrowing" is a Borrowing under Section 2.1 in which all Banks
participate in proportion to their Commitments, while a "Money Market Borrowing"
is a Borrowing under Section 2.3 in which the Bank participants are determined
on the basis of their bids in accordance therewith).
ARTICLE II.
THE CREDITS
SECTION 2.1. COMMITMENTS TO LEND DURING REVOLVING CREDIT PERIOD. During
the Revolving Credit Period each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make loans to the Borrower pursuant
to this Section from time to time in amounts such that the aggregate principal
amount of Committed Loans by such Bank at any one time outstanding shall not
exceed the amount of its Commitment MINUS such Bank's Commitment Percentage of
the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations,
PROVIDED that the sum of the outstanding amount of the Committed Borrowings
(after giving effect to all amounts requested) PLUS the outstanding amount of
the Money Market Loans PLUS the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations with respect to all Letters of Credit shall not at any
time exceed the Total Commitment. Each Borrowing under this Section shall be in
an aggregate principal amount of $10,000,000 or any larger integral multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount
available in accordance with Section 3.2(b)) and shall be made from the several
Banks ratably in proportion to their respective Commitments. Within the
foregoing limits, the Borrower may borrow under this Section, repay, or to the
extent
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permitted by Section 2.11, prepay Loans and reborrow at any time during the
Revolving Credit Period under this Section.
SECTION 2.2. NOTICE OF COMMITTED BORROWINGS. The Borrower shall give
the Agent notice (a "Notice of Committed Borrowing") not later than 10:00 A.M.
(Boston time) on the date of each Base Rate Borrowing and not later than 11:00
A.M. (Boston time) on the third Euro-Dollar Business Day before each Euro-Dollar
Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be
Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of Euro-Dollar Loans or Money Market
Loans, the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period.
SECTION 2.3. MONEY MARKET BORROWINGS.
(a) THE MONEY MARKET OPTION. In addition to Committed Borrowings
pursuant to Section 2.1, the Borrower may, as set forth in this Section, request
the Banks during the Revolving Credit Period to make offers to make Money Market
Loans to the Borrower. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section. Each Money Market Loan may be
greater than the Commitment of the Bank giving the bid but the aggregate amount
of all Money Market Loans may not exceed the Total Commitment LESS all
outstanding Committed Borrowings, Money Market Loans and the aggregate Maximum
Drawing Amount and Unpaid Reimbursement Obligations of all outstanding Letters
of Credit. In addition, the aggregate outstanding principal amount of all Money
Market Loans shall not at any time exceed $100,000,000.
(b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to
request offers to make Money Market Loans under this Section, it shall transmit
to the Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of EXHIBIT B hereto so as to be received no later than
10:00 A.M. (Boston time) on (x) the fifth Euro-Dollar Business Day prior to the
date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the
Domestic Business Day next preceding the date of Borrowing proposed therein, in
the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective) specifying:
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(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall
be $10,000,000 or a larger integral multiple of $1,000,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon receipt of a
Money Market Quote Request, the Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of EXHIBIT C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.
(d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.1 not later than (x) 2:00 P.M. (Boston
time) on the fourth Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (Boston time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); PROVIDED that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles III
and VI, any Money Market Quote so made shall be irrevocable except with the
written consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
EXHIBIT D hereto and shall in any case specify:
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(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount (w) may be
greater than or less than the Commitment of the quoting Bank, (x) must
be $5,000,000 or a larger integral multiple of $1,000,000, (y) may not
exceed the principal amount of Money Market Loans for which offers were
requested and (z) may be subject to an aggregate limitation as to the
principal amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as a
percentage (specified to the nearest 1/10,000th of 1%) to be added to
or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%) (the
"Money Market Absolute Rate") offered for each such Money Market Loan,
and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with EXHIBIT D
hereto or does not specify all of the information required by
subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection
(d)(i).
(e) NOTICE TO BORROWER. The Agent shall promptly notify the
Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is
in accordance with subsection (d) and (y) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct a manifest error in
such former Money Market Quote. The Agent's notice to the Borrower shall specify
(A) the aggregate principal amount of Money Market Loans for which offers have
been received for each Interest Period specified in the related Money Market
Quote Request, (B) the respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case
<PAGE>
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may be, so offered and (C) if applicable, limitations on the aggregate principal
amount of Money Market Loans for which offers in any single Money Market Quote
may be accepted.
(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than (x) 10:00
A.M. (Boston time) on the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) 10:15 A.M. (Boston
time) or 30 minutes after the receipt of the Money Market Quote from the Agent
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify the
Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of
Money Market Borrowing") shall specify the aggregate principal amount of offers
for each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; PROVIDED that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request,
(ii) the principal amount of each Money Market Borrowing
must be $10,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to comply with
the requirements of this Agreement.
(g) ALLOCATION BY AGENT. If offers are made by two or more Banks
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Agent among such Banks as nearly as possible (in integral
multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the
aggregate principal amounts of such offers. Determinations by the Agent of the
amounts of Money Market Loans shall be conclusive in the absence of manifest
error.
SECTION 2.4. NOTICE TO BANKS; FUNDING OF LOANS.
(a) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share (if
any) of such Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 12:00 Noon (Boston time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in Boston, to the Agent at its
address specified in or pursuant to Section 9.1. Unless the Agent
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determines that any applicable condition specified in Article III has not been
satisfied, the Agent will make the funds so received from the Banks available to
the Borrower at the Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank, such
Bank shall apply the proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount being borrowed and
the amount being repaid shall be made available by such Bank to the Agent as
provided in subsection (b), or remitted by the Borrower to the Agent as provided
in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice from a Bank prior
to the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsections (b) and (c) of this Section 2.4 and the Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Agent, such Bank and the Borrower severally agree to
repay to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Agent, at (i) in the
case of the Borrower, a rate per annum equal to the higher of the Federal Funds
Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii)
in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.5. NOTES. (a) The Loans of each Bank shall be evidenced by a
single Note payable to the order of such Bank for the account of its Applicable
Lending Office in an amount equal to the aggregate unpaid principal amount of
such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(d),
the Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount, type and maturity of each Loan made by it and the date and amount of
each payment of principal made by the Borrower with respect thereto, and may, if
such Bank so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Loan then outstanding;
PROVIDED that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to
endorse its Note and to attach to and make a part of its Note a continuation of
any such schedule as and when required.
<PAGE>
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SECTION 2.6. MATURITY OF LOANS. Each Loan included in any Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
SECTION 2.7. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the Euro-Dollar Margin plus the applicable London
Interbank Offered Rate. Such interest shall be payable for each Interest Period
on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
"Euro-Dollar Margin" means, for any day, the percentage per annum equal
to the applicable Euro-Dollar Margin set forth in the table below.
If the Investment The Euro-Dollar
Level Status is Margin is
- ----------------- ---------------
Investment Level Status I .40 of 1%
Investment Level Status II .475 of 1%
Investment Level Status III .70 of 1%
Investment Level Status IV .925 of 1%
Investment Level Status V 1.075 of 1%
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London Interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin plus the London Interbank Offered Rate applicable to such
Loan and (ii) the Euro-Dollar Margin plus the average (rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective rates per annum at
which one day (or, if such amount due remains unpaid more than three Euro-Dollar
Business Days, then for such other period of time not longer than three months
as the Agent may select) deposits in dollars in an amount approximately equal to
such overdue payment due to each of the
<PAGE>
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Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in
the London interbank market for the applicable period determined as provided
above (or, if the circumstances described in clause (a) or (b) of Section 8.1
shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable
to Base Rate Loans for such day (excluding the application of the last sentence
in Section 2.7 (a)).
(d) Subject to Section 8.1, each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.7(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.3. Each Money Market Absolute
Rate Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.3. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any overdue principal of
or interest on any Money Market Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the sum of 2% plus the Base
Rate for such day.
(e) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks by telex or cable of each rate of interest so determined,
and its determination thereof shall be conclusive in the absence of manifest
error; provided that the Borrower shall, for a period of 60 days after such
notice is given, have the right to demonstrate that the rate of interest so
determined was not calculated in accordance with the terms of this Agreement;
provided further that until the fact that the rate of interest was not
calculated in accordance with the terms of this Agreement is demonstrated to the
satisfaction of the Agent (which must act reasonably and in good faith), the
Borrower shall continue to pay interest in accordance with the notice given.
(f) Each Euro-Dollar Reference Bank agrees to use its best efforts
to furnish quotations to the Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Agent shall determine
the relevant interest rate on the basis of the quotation or quotations furnished
by the remaining Euro-Dollar Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of Section 8.1 shall
apply.
(g) If for any reason any Euro-Dollar Reference Bank ceases to be
a Bank, the Agent with the written consent of the Borrower, which consent shall
not be unreasonably withheld, shall appoint a successor Euro-Dollar Reference
Bank which shall be one of the Banks.
SECTION 2.8. FEES.
(a) FACILITY FEE. The Borrower shall pay to the Agent for the
account of the Banks ratably a facility fee at the Facility Fee Rate per annum.
Such facility fee shall accrue for each day (i) from and including the Effective
Date to but excluding the Termination Date, on the aggregate amount of the
Commitments (whether used or unused) for such day and (ii) from and including
the Termination Date to but excluding the date the Loans shall be repaid in
their
<PAGE>
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entirety, on the daily average aggregate outstanding principal amount of the
Loans on such day.
(b) UTILIZATION FEE. The Borrower shall pay to the Agent for the
account of the Banks ratably, during any calendar quarter during the period from
the Effective Date to but excluding the Termination Date when the aggregate
daily average amount of outstanding Loans exceeds 33 1/3% of the aggregate
Commitments of the Banks, a utilization fee on the daily average amount of
outstanding Loans during such quarter at a rate equal to .125% per annum.
(c) PAYMENTS. Accrued fees under this Section shall be payable
quarterly in arrears on each March 31, June 30, September 30 and December 31 and
upon the date of termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their entirety).
SECTION 2.9. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. During
the Revolving Credit Period, the Borrower may, upon at least one Domestic
Business Day's notice to the Agent, (i) terminate the Commitments at any time,
if no Loans are outstanding at such time or (ii) ratably reduce from time to
time by an aggregate amount of $25,000,000 or a larger integral multiple of
$5,000,000 in excess thereof, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the Loans. If the Commitments
are reduced or terminated pursuant to this Section, such Commitments may not be
increased or reinstated thereafter.
SECTION 2.10. MANDATORY TERMINATION OF COMMITMENTS. The Commitments
shall terminate on the Termination Date, and any Loans then outstanding
(together with accrued interest thereon and any Facility Fees or other amounts
owing hereunder) shall be due and payable on such date, and the Borrower
promises to pay on the Termination Date, all such Loans outstanding on such
date, together with any and all accrued and unpaid interest thereon and any and
all other amounts due hereunder.
SECTION 2.11. OPTIONAL PREPAYMENTS. (a) The Borrower may, upon same day
notice (no later than 10:00 A.M. Boston time) to the Agent, prepay any Base Rate
Borrowing (or any Money Market LIBOR Borrowing bearing interest at the Base Rate
pursuant to Section 8.1(a)) in whole at any time, or from time to time in part
in amounts aggregating $10,000,000 or any larger integral multiple of
$1,000,000, by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment. Each such optional prepayment shall
be applied to prepay ratably the Loans of the several Banks included in such
Borrowing.
(b) The Borrower may, upon at least three Domestic Business Days'
notice to the Agent, in the case of a Money Market Absolute Rate Borrowing, or
upon at least three Euro-Dollar Business Days' notice to the Agent, in the case
of a Euro-Dollar Borrowing or a Money Market LIBOR Borrowing (other than a Money
Market LIBOR Borrowing bearing interest at the Base Rate pursuant to Section
8.1(a)), subject to the provisions of Section 2.13, prepay any such Borrowing in
whole or in part in amounts aggregating $10,000,000 or any larger integral
multiple of $1,000,000, on any Domestic Business Day, in the case of a Money
Market Absolute Rate Borrowing, or any Euro-Dollar Business Day, in the case of
a Euro-Dollar Borrowing or a Money Market LIBOR Borrowing, by paying the
principal amount to be prepaid
<PAGE>
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together with accrued interest thereon to the date of prepayment. Each such
prepayment shall be applied to prepay ratably the outstanding Euro-Dollar Loans
or Money Market Loans of the several Banks included in such Borrowing, subject
to Article VIII.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Agent shall promptly notify each Bank of the contents thereof and
of such Bank's ratable share (if any) of such prepayment and such notice shall
not thereafter be revocable by the Borrower.
SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans, payments of
Reimbursement Obligations and of fees and other amounts due hereunder, not later
than 12:00 Noon (Boston time) on the date when due, in U.S. Dollars and in
immediately available funds in Boston, to the Agent at the Agent's Office. The
Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Domestic Loans, payments of Reimbursement
Obligations or of fees shall be due on a day which is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans or the Money Market LIBOR Loans shall be due on a day which is
not a Euro-Dollar Business Day, the date for payment thereof shall be extended
to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Absolute Rate Loans shall be due
on a day which is not a Euro-Dollar Business Day, the date for payment thereof
shall be extended to the next succeeding Euro-Dollar Business Day. If the date
for any payment of principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loans or Money Market Loans (pursuant
to Section 2.11(b), Article VI or VIII or otherwise) on any day other than the
last day of the Interest Period applicable thereto, or the end of an applicable
period fixed pursuant to Section 2.7(d), or if the Borrower fails to borrow any
Euro-Dollar Loans or Money Market Loans after notice has been given to any Bank
in accordance with Section 2.4(a), the Borrower shall reimburse each Bank within
15 days after demand for any resulting loss or expense incurred by it (or by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or failure to borrow, PROVIDED that such Bank shall have
<PAGE>
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delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error,
PROVIDED that the Borrower shall have the right, within 60 days of receipt of
such certificate, to demonstrate that the amount set forth in such certificate
is incorrect and request an adjustment of the amount to be, or theretofore,
paid.
SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. TAXES. (a) Any and all payments by the Borrower to or for
the account of any Bank or the Agent hereunder or under any Note, Letter of
Credit or Letter of Credit Application shall be made free and clear of and
without deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING, (1) in the case of each Bank and the Agent, taxes imposed on
its income, and franchise or similar taxes imposed on it, by the jurisdiction
under the laws of which such Bank or the Agent (as the case may be) is
organized, (2) in the case of each Bank, taxes imposed on its income, and
franchise or similar taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office and (3) in the case of each Bank, taxes imposed on its
net income and franchise taxes which such Bank or Agent is subject to at the
time the Bank first becomes a party to this Agreement, at whatever rates may be
in effect for such taxes from time to time (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note, Letter of Credit or Letter of Credit Application to any Bank or the Agent,
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.15) such Bank or the Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the Agent,
at its address referred to in Section 9.1, the original or a certified copy of a
receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise solely from any payment made hereunder or under any
Note, Letter of Credit or Letter of Credit Application or from the execution or
delivery of, or otherwise with respect to, this Agreement or any Note, Letter of
Credit or Letter of Credit Application (hereinafter referred to as "Other
Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.15) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 15 days from the date
such Bank or the Agent (as the case may be) makes demand therefor; PROVIDED,
HOWEVER, that (1)
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after the Borrower has made a payment pursuant to this provision, the Borrower
shall not be obligated to pay any further penalties, interest or expenses
accrued thereafter imposed by a jurisdiction with respect to such Taxes or Other
Taxes to which the payment is related and (2) if the Bank knows or has reason to
know of the imposition of any Taxes or Other Taxes for which the Borrower is
required to indemnify such Bank under this Section 2.15 and fails to promptly
notify the Borrower of such imposition, the Borrower shall not be obligated to
pay any penalties, interest or expenses accrued with respect to such Taxes or
Other Taxes after the Bank has such knowledge and before the Borrower has
received such notification.
(d) Each Bank organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service Form W-8BEN or W-8EC1, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 2.15(a).
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 2.15(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Bank shall not be entitled to indemnification under Section 2.15(a) with
respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a
Bank, which is otherwise exempt from or subject to a reduced rate of withholding
tax, become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such Bank shall reasonably
request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or
for the account of any Bank pursuant to this Section 2.15, then such Bank will
change the jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such change,
in the judgment of such Bank, is not otherwise disadvantageous to such Bank.
(g) Upon a reasonable request of the Borrower, a Bank shall, at
the expense of the Borrower, seek the refund for any Taxes or Other Taxes for
which the Borrower has indemnified the Bank under this Section 2.15, PROVIDED
that such Bank, in its sole discretion, determines that the application of such
refund will not be detrimental to such Bank.
SECTION 2.16. REGULATION D COMPENSATION. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on the related
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loans of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London
<PAGE>
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Interbank Offered Rate divided by (B) one MINUS the Euro-Dollar Reserve
Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank
wishing to require payment of such additional interest (x) shall so notify the
Borrower and the Agent in writing no later than two Euro-Dollar Business Days
before the making of any Euro-Dollar Loans hereunder, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after the giving of
such notice and (y) shall notify the Borrower at least five Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section.
SECTION 2.17. LETTERS OF CREDIT.
SECTION 2.17.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject
to the terms and conditions hereof and the execution and delivery by
the Borrower of a letter of credit application on the Agent's customary
form (a "Letter of Credit Application"), the Agent on behalf of the
Banks and in reliance upon the agreement of the Banks set forth in
Section 2.17.4 and upon the representations and warranties of the
Borrower contained herein, agrees, in its individual capacity, to
issue, extend and renew for the account of the Borrower one or more
standby or documentary letters of credit (individually, a "Letter of
Credit"), in such form as may be requested from time to time by the
Borrower and agreed to by the Agent; PROVIDED, HOWEVER, that, after
giving effect to such request, (a) the sum of the aggregate Maximum
Drawing Amount and all Unpaid Reimbursement Obligations shall not
exceed $25,000,000 at any one time and (b) the sum of (i) the Maximum
Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement
Obligations, and (iii) the amount of all Loans outstanding shall not
exceed the Total Commitment. Notwithstanding the foregoing, the Agent
shall have no obligation to issue any Letter of Credit to support or
secure any Indebtedness of the Borrower or any of its Subsidiaries to
the extent that such Indebtedness was incurred prior to the proposed
issuance date of such Letter of Credit, unless in any such case the
Borrower demonstrates to the satisfaction of the Agent that (x) such
prior incurred Indebtedness was then fully secured by a prior perfected
and unavoidable security interest in collateral provided by the
Borrower or such Subsidiary to the proposed beneficiary of such Letter
of Credit or (y) such prior incurred Indebtedness was then secured or
supported by a letter of credit issued for the account of the Borrower
or such Subsidiary and the reimbursement obligation with respect to
such letter of credit was fully secured by a prior perfected and
unavoidable security interest in collateral provided to the issuer of
such letter of credit by the Borrower or such Subsidiary.
SECTION 2.17.2. LETTER OF CREDIT APPLICATIONS. Each Letter of
Credit Application shall be completed to the satisfaction of the Agent.
In the event that any provision of any Letter of Credit Application
shall be inconsistent with any provision of this Credit Agreement, then
the provisions of this Credit Agreement shall, to the extent of any
such inconsistency, govern.
SECTION 2.17.3. TERMS OF LETTERS OF CREDIT. Each Letter of
Credit issued, extended or renewed hereunder shall, among other things,
(a) provide for the payment of sight drafts for honor thereunder when
presented in accordance with the terms
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thereof and when accompanied by the documents described therein, and
(b) have an expiry date no later than the date which is fourteen (14)
days (or, if the Letter of Credit is confirmed by a confirmer or
otherwise provides for one or more nominated persons, forty-five (45)
days) prior to the Termination Date. Each Letter of Credit so issued,
extended or renewed shall be subject to the Uniform Customs or, in the
case of a standby Letter of Credit, either the Uniform Customs or the
International Standby Practices (ISP98), International Chamber of
Commerce Publication No. 590, or any successor code of standby letter
of credit practices among banks, adopted by the Agent in the ordinary
course of its business as a standby letter of credit issuer and in
effect at the time of issuance of such Letter of Credit.
SECTION 2.17.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank
severally agrees that it shall be absolutely liable, without regard to
the occurrence of any Default or Event of Default or any other
condition precedent whatsoever, to the extent of such Bank's Commitment
Percentage, to reimburse the Agent on demand for the amount of each
draft paid by the Agent under each Letter of Credit to the extent that
such amount is not reimbursed by the Borrower pursuant to Section 2.18
(such agreement for a Bank being called herein the "Letter of Credit
Participation" of such Bank).
SECTION 2.17.5. PARTICIPATIONS OF BANKS. Each such payment
made by a Bank shall be treated as the purchase by such Bank of a
participating interest in the Borrower's Reimbursement Obligation under
Section 2.18 in an amount equal to such payment. Each Bank shall share
in accordance with its participating interest in any interest which
accrues pursuant to Section 2.18.
SECTION 2.18. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to
induce the Agent to issue, extend and renew each Letter of Credit and the Banks
to participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,
(a) except as otherwise expressly provided in Section 2.18(b) and
(c), on each date that any draft presented under such Letter of Credit is
honored by the Agent, or the Agent otherwise makes a payment with respect
thereto, (i) the amount paid by the Agent under or with respect to such Letter
of Credit, and (ii) the amount of any taxes, fees, charges or other reasonable
costs and expenses whatsoever incurred by the Agent or any Bank in connection
with any payment made by the Agent or any Bank under, or with respect to, such
Letter of Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Maximum Drawing Amount, an amount equal to
such difference, which amount shall be held by the Agent for the benefit of the
Banks and the Agent as cash collateral for all Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all Letters of
Credit in accordance with Article VI, an amount equal to the then Maximum
Drawing Amount on all Letters of Credit, which
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amount shall be held by the Agent for the benefit of the Banks and the Agent as
cash collateral for all Reimbursement Obligations.
Each such payment shall be made to the Agent at the Agent's Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this Section 2.18 at any time from the date such amounts
become due and payable (whether as stated in this Section 2.18, by acceleration
or otherwise) until payment in full (whether before or after judgment) shall be
payable to the Agent on demand at the rate specified in Section 2.7 for overdue
principal on the Loans.
SECTION 2.19. LETTER OF CREDIT PAYMENTS. If any draft shall be
presented or other demand for payment shall be made under any Letter of Credit,
the Agent shall notify the Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to pay
such draft or honor such demand for payment. If the Borrower fails to reimburse
the Agent as provided in Section 2.18 on or before the date that such draft is
paid or other payment is made by the Agent, the Agent may at any time thereafter
notify the Banks of the amount of any such Unpaid Reimbursement Obligation. No
later than 3:00 p.m. (Boston time) on the Domestic Business Day next following
the receipt of such notice, each Bank shall make available to the Agent, at the
Agent's Office, in immediately available funds, such Bank's Commitment
Percentage of such Unpaid Reimbursement Obligation, together with an amount
equal to the product of (a) the average, computed for the period referred to in
clause (c) below, of the weighted average interest rate paid by the Agent for
federal funds acquired by the Agent during each day included in such period,
TIMES (b) the amount equal to such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, TIMES (c) a fraction, the numerator of which is the
number of days that elapse from and including the date the Agent paid the draft
presented for honor or otherwise made payment to the date on which such Bank's
Commitment Percentage of such Unpaid Reimbursement obligation shall become
immediately available to the Agent, and the denominator of which is 360. The
responsibility of the Agent to the Borrower and the Banks shall be only to
determine that the documents (including each draft) delivered under each Letter
of Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit.
SECTION 2.20. OBLIGATIONS ABSOLUTE. The Borrower's obligations under
this Section 2.17-2.22 shall be absolute and unconditional under any and all
circumstances and irrespective of the occurrence of any Default or Event of
Default or any condition precedent whatsoever or any setoff, counterclaim or
defense to payment which the Borrower may have or have had against the Agent,
any Bank or any beneficiary of a Letter of Credit. The Borrower further agrees
with the Agent and the Banks that the Agent and the Banks shall not be
responsible for, and the Borrower's Reimbursement Obligations under Section 2.18
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, fraudulent or forged, or any dispute
between or among the Borrower, the beneficiary of any Letter of Credit or any
financing institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of the Borrower against the
beneficiary of any Letter of Credit or any such transferee. The Agent and the
Banks shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any
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message or advice, however transmitted, in connection with any Letter of Credit.
The Borrower agrees that any action taken or omitted by the Agent or any Bank
under or in connection with each Letter of Credit and the related drafts and
documents, if done in good faith, shall be binding upon the Borrower and shall
not result in any liability on the part of the Agent or any Bank to the
Borrower.
SECTION 2.21. RELIANCE BY ISSUER. To the extent not inconsistent with
Section 2.20, the Agent shall be entitled to rely, and shall be fully protected
in relying upon, any Letter of Credit, draft, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Credit Agreement
unless it shall first have received such advice or concurrence of the Required
Banks as it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Credit Agreement in accordance with a request
of the Required Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and all future holders of the
Notes or of a Letter of Credit Participation.
SECTION 2.22. LETTER OF CREDIT FEE. The Borrower shall pay a fee (in
each case, a "Letter of Credit Fee") to the Agent in respect of each Letter of
Credit, calculated at an amount equal to the Euro-Dollar Margin then in effect
for Euro-Dollar Borrowings times the aggregate face amount of such Letter of
Credit, PLUS, a fee equal to one-eighth of one percent (1/8%) per annum of the
face amount of such Letter of Credit (the "Fronting Fee"), which Fronting Fee
shall be for the account of the Agent, as a fronting fee, and the balance of
which Letter of Credit Fee shall be for the accounts of the Banks in accordance
with their respective Commitment Percentages. The Letter of Credit Fee and the
Fronting Fee shall be payable quarterly in arrears on the last Business Day of
each calendar quarter for the calendar quarter then ending. In respect of each
Letter of Credit, the Borrower shall also pay to the Agent for the Agent's own
account, at such other time or times as such charges are customarily made by the
Agent, the Agent's customary issuance, amendment, negotiation or document
examination and other administrative fees as in effect from time to time.
ARTICLE III.
CONDITIONS
SECTION 3.1. EFFECTIVENESS. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.5):
(a) receipt by the Agent of counterparts hereof signed by each of
the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received,
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receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile
transmission or other written confirmation from such party of execution of a
counterpart hereof by such party);
(b) receipt by the Agent of certified copies of the corporate
charter and by-laws of the Borrower and of all corporate action taken by the
Borrower authorizing the execution, delivery and performance of this Agreement
(including, without limitation, a certificate of the Borrower setting forth the
resolutions of the Board of Directors or the Executive Committee of the Board of
Directors authorizing the transactions contemplated thereby and a certified copy
of the by-laws provision of the Borrower authorizing the Executive Committee so
to act);
(c) receipt by the Agent of a certificate from the Borrower in
respect of the name and signature of each of the officers (i) who is authorized
to sign on its behalf and (ii) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications in
connection with this Agreement;
(d) receipt by the Agent for the account of each Bank of a duly
executed Note dated on or before the Effective Date complying with the
provisions of Section 2.5;
(e) receipt by the Agent of an opinion of Ho-il Kim, General
Counsel of the Borrower, substantially in the form of EXHIBIT E hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(f) receipt by the Agent of an opinion of Bingham Dana LLP,
Agent's Special Counsel, substantially in the form of Exhibit F hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(g) termination of the commitments and payment by the Borrower of
all amounts due under the Existing Credit Agreement; and
(h) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Borrower, the corporate authority for
and the validity of this Agreement and the Notes, and any other matters relevant
hereto, all in form and substance satisfactory to the Agent;
PROVIDED that this Agreement shall not become effective or be binding
on any party hereto unless all of the foregoing conditions are satisfied not
later than July 13, 2001. The Agent shall promptly notify the Borrower and the
Banks of the Effective Date, and such notice shall be conclusive and binding on
all parties hereto. The Banks that are parties to the Existing Credit Agreement,
comprising the "Required Banks" as defined therein, and the Borrower agree that
the commitments under the Existing Credit Agreement shall terminate in their
entirety simultaneously with and subject to the effectiveness of this Agreement
and that the Borrower shall be obligated to pay the accrued facility fees
thereunder to but excluding the date of such effectiveness.
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SECTION 3.2. BORROWINGS. The obligation of any Bank to make a Loan on
the occasion of any Borrowing, or of the Agent to issue, extend or renew any
Letter of Credit, is subject to the satisfaction of the following conditions:
(a) in the case of any Borrowing, receipt by the Agent of a Notice
of Borrowing as required by Section 2.2 or 2.3, as the case may be;
(b) the fact that, immediately after such Borrowing, or the
issuance, extension or renewal of such Letter of Credit, the aggregate
outstanding principal amount of the Loans will not exceed the Total Commitment;
(c) the fact that, immediately before and after such Borrowing, or
such issuance, extension or renewal of such Letter of Credit, no Default (or, in
the case of a Refunding Borrowing, no Event of Default by reason of failure to
comply with Section 5.7 or 5.8) shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the
Borrower contained in this Agreement (except, in the case of a Refunding
Borrowing, the Borrower need not make the representations and warranties set
forth in Sections 4.4(b), 4.5, 4.6 and 4.7) shall be true on and as of the date
of such Borrowing or such issuance, extension or renewal of such Letter of
Credit.
Each Borrowing or request for the issuance, extension or renewal of any
Letter of Credit hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the facts specified in
clauses (b), (c) and (d) of this Section.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each of the Banks
that:
SECTION 4.1. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of this
Agreement and the other Loan Documents are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official (other than regular informational filings with the Securities and
Exchange Commission) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of incorporation
or by-laws of the Borrower or of any judgment, injunction, order, decree or
material agreement or instrument binding upon the Borrower or any of its
Consolidated Subsidiaries or result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Consolidated Subsidiaries. In addition,
neither the Borrowers nor any of its Subsidiaries is in violation of any
agreement or
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instrument to which it may be subject or by which it or any of its properties
may be bound or any decree, order, judgment, statute, law, license, rule or
regulation, in any of the foregoing cases in a manner that could result in the
imposition of substantial penalties or have a material adverse effect on the
business, assets or financial condition of the Borrower.
SECTION 4.3. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and the Notes and other Loan Documents, when
executed and delivered in accordance with this Agreement, will constitute valid
and binding obligations of the Borrower.
SECTION 4.4. FINANCIAL INFORMATION.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of September 30, 2000, and the related consolidated
statements of income, cash flows and stockholders' equity for the fiscal year
then ended, reported on by PricewaterhouseCoopers LLP and set forth in the
Borrower's 2000 Form 10-K, a copy of which has been delivered to each of the
Banks, fairly present, in conformity with generally accepted accounting
principles, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year.
(b) Since September 30, 2000, there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.5. LITIGATION. Except as described in the Borrower's 2000
Form 10-K, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Consolidated Subsidiaries before any court or arbitrator or any
governmental body, agency or official which poses a material risk of being
adversely determined and, if so determined, might reasonably be expected to
materially adversely affect the business; consolidated financial position or
consolidated results of operations of the Borrower and its Consolidated
Subsidiaries considered as a whole or which in any manner draws into question
the validity of this Agreement or the other Loan Documents.
SECTION 4.6. COMPLIANCE WITH ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
respects material to the Borrower and its Consolidated Subsidiaries considered
as a whole with the presently applicable provisions of ERISA and the Internal
Revenue Code with respect to each Plan. No member of the ERISA Group has within
the past five years (i) sought a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan which has resulted or could reasonably be expected to
result in the imposition of a Lien under Section 302 (f) of ERISA, Section
412(n) of the Internal Revenue Code or any successor provision thereto or the
posting of a bond or other security under Section 307 of ERISA, Section
401(a)(29) of the Internal Revenue Code or any successor provision thereto in
excess of $20,000,000 or (iii) incurred any liability in excess of $10,000,000
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
<PAGE>
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SECTION 4.7. ENVIRONMENTAL MATTERS. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Consolidated Subsidiaries, in the course of which, taking into account the
requirements of such Environmental Laws, it makes a reasonable effort to
identify and evaluate known and potential associated liabilities and costs
(including, without limitation, any capital or operating expenditures required
for clean-up or closure of properties presently or previously owned, any capital
or operating expenditures required to achieve or maintain compliance with
Environmental Laws or as a condition of any license, permit or contract held or
entered into by the Borrower or any Consolidated Subsidiary, any related
constraints on operating activities, including any periodic or permanent
shutdown of any facility or reduction in the level of or change in the nature of
operations conducted thereat and any actual or potential material liabilities to
third parties, including employees of the Borrower and its Consolidated
Subsidiaries and any related costs and expenses). On the basis of this review,
the Borrower has reasonably concluded that such liabilities and costs, including
the cost of compliance with and liabilities arising under Environmental Laws,
are unlikely to have a material adverse effect on the business, financial
condition, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.8. TAXES. United States Federal income tax returns of the
Borrower and its Consolidated Subsidiaries have been examined and closed through
the fiscal year ended September 30, 1996. The Borrower and its Consolidated
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Borrower or any Subsidiary, except such taxes or assessments, if any, as are
being contested in good faith by appropriate proceedings or where the failure to
do so does not materially adversely affect the Borrower and its Consolidated
Subsidiaries, considered as a whole. The charges, accruals and reserves on the
books of the Borrower and its Consolidated Subsidiaries in respect of taxes or
other governmental charges are, in the opinion of the Borrower, adequate.
SECTION 4.9. SUBSIDIARIES. Each of the Borrower's Subsidiaries which is
organized as a corporation is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
has all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. NOT AN INVESTMENT COMPANY. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.11. FULL DISCLOSURE. All information heretofore furnished by
the Borrower to the Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to the Agent or any Bank will be, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Banks in writing any and
all facts known to the Borrower's management which materially and adversely
affect or may affect (to the extent the Borrower's management can now reasonably
foresee), the
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business, operations or financial condition of the Borrower and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement.
ARTICLE V.
COVENANTS
The Borrower agrees that, so long as any Loan, Unpaid Reimbursement
Obligation, Letter of Credit or Note is outstanding or any Bank has any
Commitment hereunder or the Agent has any obligation to issue, extend or renew
any Letters of Credit:
SECTION 5.1. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 95 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flow and stockholders'
equity for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on in a manner acceptable to
the Securities and Exchange Commission by PricewaterhouseCoopers LLP or other
independent accountants of nationally recognized standing;
(b) as soon as available and in any event within 50 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income,
cash flow and stockholders' equity for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in each
case in comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of presentation,
generally accepted accounting principles and consistency by the chief financial
officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 5.7 to 5.14,
inclusive, on the date of such financial statements and (ii) stating whether any
Default exists on the date of such certificate and, if any Default then exists,
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent accountants which reported on such statements whether anything has
come to their attention to cause them to believe that any Default existed on the
date of such statements, PROVIDED, HOWEVER, that no such statement shall be
required if there are no Loans outstanding at the end of the applicable fiscal
year;
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial
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officer or the chief accounting officer of the Borrower setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA with respect to a Multiemployer
Plan or notice that any Multiemployer Plan is in reorganization, is insolvent or
has been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan which is a defined benefit pension plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code, a copy of such application; (v) gives notice
of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such
notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or makes any amendment to any Plan which has resulted or
could reasonably be expected to result in the imposition of a Lien under Section
302 (f) of ERISA or Section 412(n) of the Internal Revenue Code or any successor
provision thereto or the posting of a bond or other security under Section 307
of ERISA or Section 401(a)(29) of the Internal Revenue Code or any successor
provision thereto, a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth details as to such occurrence
and action, if any, which the Borrower or applicable member of the ERISA Group
is required or proposes to take;
(i) if and when any officer of the Borrower obtains knowledge of
any actual or pending change in the rating of the Borrower's outstanding senior
unsecured long-term debt securities or commercial paper by Moody's or S&P, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof;
(j) if and when any officer of the Borrower obtains knowledge of
any reason why the Agent and each Bank may not conclusively rely on the
certificate from the Borrower in respect of the names and signatures of
authorized officers delivered pursuant to Section 3.1(c) of this Agreement, a
notice in writing from the Borrower setting forth the details thereof; and
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(k) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
The Banks and the Agent understand that some of the information furnished to
them pursuant to this Section 5.1 may be received by them prior to the time such
information shall have been made public, and the Banks and the Agent agree that
upon written notice from the Borrower that any such written information has not
been made public they will keep such information furnished to them pursuant to
this Section 5.1 confidential and will make no use of such information or
disclosure of such information to other Persons who have not been furnished such
information until it shall have become public through no fault of any of the
Banks, except to the extent that such use or disclosure (i) is in connection
with matters involving this Agreement, any assignment and assumption agreement
with Assignees or participation agreements with Participants or (ii) is made in
accordance with obligations under law or regulations or in response to requests
from governmental agencies or authorities pursuant to subpoenas or other process
to make information available to governmental agencies and examiners or to
others. Notwithstanding the foregoing, the Banks may make information furnished
to them pursuant to this Section 5.1 available to their Assignees or
Participants or proposed Assignees or Participants, PROVIDED that such Persons
have agreed in writing to be bound by the confidentiality provisions set forth
in this Section.
SECTION 5.2. PAYMENT OF OBLIGATIONS. The Borrower will pay and
discharge, and will cause each Consolidated Subsidiary to pay and discharge, at
or before maturity, all their respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Subsidiary to maintain, in accordance with generally accepted
accounting principles, appropriate reserves for the accrual of any of the same.
In addition, the Borrower will duly and punctually pay or cause to be paid the
principal and interest on the Loans, all Reimbursement Obligations, the Letter
of Credit Fees, the Facility Fee and all other amounts provided for in this
Agreement and the other Loan Documents to which the Borrower is a party, all in
accordance with the terms of this Agreement and such other Loan Documents.
SECTION 5.3. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will
keep, and will cause each Consolidated Subsidiary to keep, all of its properties
used or useful in the conduct of its business or the business of such Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, that nothing in this clause (a) shall prevent the Borrower or any of
its Consolidated Subsidiaries from discontinuing the operations and maintenance
of any of its properties or those of its Consolidated Subsidiaries if such
discontinuance is, in the judgment of the Borrower or such Subsidiary, desirable
in the conduct of its or their business and which do not in the aggregate
materially adversely affect the business of the Borrower and its Consolidated
Subsidiaries considered as a whole.
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(b) The Borrower will, and will cause each of its Consolidated
Subsidiaries to, maintain (either in the name of the Borrower or in such
subsidiary's own name) with financially sound and reputable insurance companies,
insurance on such of their respective properties in at least such amounts and
against at least such risks (and with such risk retention) as are usually
insured against in the same general area by companies of established repute
engaged in the same or similar business; and will furnish to the Banks, upon
request from the Agent, information presented in reasonable detail (but not
including the actual insurance policy) as to the insurance so carried.
SECTION 5.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Company will do or cause to be done, and will cause each of its Consolidated
Subsidiaries to do or cause to be done, all things necessary to preserve and
keep in full force and effect its existence and good standing under the laws of
its jurisdiction of incorporation, maintain its qualification to do business in
each state in which the failure to do so would have a material adverse effect on
the condition, financial or otherwise, of the Borrower and its Consolidated
Subsidiaries considered as a whole, and maintain all of the rights and
franchises reasonably necessary to the conduct of the business of the Borrower
and its Consolidated Subsidiaries considered as a whole; PROVIDED that nothing
in this Section 5.4 shall prohibit mergers or consolidations or sales of assets
not prohibited by Sections 5.11 and 5.12 hereof or prevent the Borrower from
liquidating or selling any of its Consolidated Subsidiaries.
SECTION 5.5. COMPLIANCE WITH LAWS. The Borrower will comply, and cause
each Consolidated Subsidiary to comply, in all material respects with all
material applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower
will keep, and will cause each Consolidated Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Consolidated Subsidiary to permit, representatives
of any Bank at such Bank's expense to visit and inspect any of their respective
properties, and, for the purposes of verifying compliance with this Agreement or
the accuracy of the financial information provided hereunder, to examine and
make abstracts from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.7. DEBT. Consolidated Debt minus the lesser of (x)
$50,000,000 and (y) the amount of Temporary Cash Investments (at book value)
then held in the Borrower's corporate cash management system will not exceed 56%
of Total Capitalization at any time. Total Debt of all Consolidated Subsidiaries
(excluding Debt of a Consolidated Subsidiary to the Borrower or to another
Consolidated Subsidiary) will at no time exceed 25% of Total Capitalization. For
purposes of this Section any preferred stock of a Consolidated Subsidiary held
by a Person other than the Borrower or a Consolidated Subsidiary shall be
included, at the higher of its voluntary or involuntary liquidation value, in
"Consolidated Debt" and in the "Debt" of such
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Consolidated Subsidiary. Consolidated Debt arising in connection with any
Receivables Transactions shall not exceed $100,000,000 in the aggregate.
SECTION 5.8. DEBT SERVICE. The ratio at each fiscal quarter-end of (a)
Consolidated EBITDA for the four fiscal quarters then ended to (b) Consolidated
Total Interest Expense for such four fiscal quarters will at no time be less
than 3.50 to 1.00.
SECTION 5.9. INVESTMENTS. Neither the Borrower nor any Consolidated
Subsidiary will make, acquire or hold any Investment in any Person other than:
(a) Investments in Subsidiaries and Equity Affiliates (including
investments in entities which, as a result of such Investment, become
Subsidiaries or Equity Affiliates) and Investments in Aearo Corporation (the
"Designated Company") or any successor to any of such entities, PROVIDED that
the Borrower and its Consolidated Subsidiaries may continue to hold Investments
in any entity which was, or is the successor (by merger, acquisition or
otherwise) to a Subsidiary or Equity Affiliate whether or not such entity
remains a Subsidiary or Equity Affiliate and may take and hold Investments in
any affiliate of such a successor received in connection with any such merger,
acquisition or similar transaction.
(b) Temporary Cash Investments;
(c) Investments in securities commonly known as "commercial paper"
issued by a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase have been
rated and the ratings for which are not less than "P 2" if rated by Moody's, and
not less than "A2" if rated by S&P;
(d) Investments consisting of Margin Stock, PROVIDED that the aggregate
book value of all Investments in Margin Stock held at any time under this
Section 5.9 does not exceed $20,000,000 (excluding the stock of the Designated
Company and the Borrower), and PROVIDED FURTHER that the making, acquisition or
holding of such Investments does not cause or result in any violation of the
provisions of Regulation U;
(e) Investments in the Borrower by any Consolidated Subsidiary;
and
(f) any Investment not otherwise permitted by the foregoing
clauses of this Section if, immediately after such Investment is made or
acquired, the aggregate net book value of all Investments permitted by this
clause (e) does not exceed 10% of Consolidated Tangible Net Worth.
SECTION 5.10. NEGATIVE PLEDGE. Neither the Borrower nor any
Consolidated Subsidiary will create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal amount not
exceeding $40,000,000;
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(b) any Lien existing on any asset of any corporation at the time
such corporation becomes a Consolidated Subsidiary;
(c) any Lien on any asset securing Debt incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such asset
(including an asset to be held pursuant to a capital lease), PROVIDED that such
Lien attaches to such asset concurrently with or within 90 days after the
acquisition thereof;
(d) any Lien on any asset of any corporation existing at the time
such corporation is merged or consolidated with or into the Borrower or a
Consolidated Subsidiary;
(e) any Lien existing on any asset prior to the acquisition
thereof by the Borrower or a consolidated Subsidiary and not created in
contemplation of such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, PROVIDED that such Debt is not increased and is not
secured by any additional assets;
(g) Liens arising in the ordinary course of its business which (i)
do not secure Debt, (ii) do not secure any single obligation in an amount
exceeding $75,000,000 and (iii) do not in the aggregate materially detract from
the value of its assets or materially impair the use thereof in the operation of
its business;
(h) any purchase money mortgages and Liens created in respect of
property acquired pursuant to Investments made after the date of this Agreement
in specialty chemical businesses located outside North America and Western
Europe, PROVIDED that (i) no such mortgage or Lien shall extend to or cover any
other property of the Borrower or any Consolidated Subsidiary and (ii) the
aggregate principal amount of all liabilities secured by all mortgages and Liens
in respect of such property (whether or not the Borrower or any Consolidated
Subsidiary assumes or becomes liable for such liabilities) shall not at any time
exceed 100% of the purchase price of such property;
(i) any Lien on Margin Stock;
(j) any Lien on accounts receivable and related rights of the
Borrower arising in connection with a Receivables Transaction; provided that no
such Lien shall extend to any assets other than the accounts receivable and
related rights subject to such Receivables Transaction; and
(k) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal amount at any time outstanding
not to exceed 10% of Consolidated Tangible Net Worth.
SECTION 5.11. CONSOLIDATIONS AND MERGERS. The Borrower will not (i)
consolidate or merge with or into any other Person unless upon completion of
such merger or consolidation the surviving entity is the Borrower or (ii) sell,
lease or otherwise transfer, directly or indirectly,
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in any one transaction or series of related transactions, all or substantially
all of the assets of the Borrower and its Consolidated Subsidiaries, taken as a
whole, to any other Person.
SECTION 5.12. SALES OF ASSETS. Except as provided in Section 5.3, the
Borrower shall maintain direct ownership of substantially all of the tangible
and intangible assets employed in connection with (x) the Borrower's United
States domestic carbon black business and (y) the Borrower's United States
domestic fumed silica business, and shall conduct such businesses generally in
the same manner and to the same extent as conducted by the Borrower on September
30, 2000 and as described in the Borrower's 2000 Form 10-K.
SECTION 5.13. USE OF PROCEEDS. The proceeds of the Loans made and the
Letters of Credit issued under this Agreement will be used by the Borrower to
refinancing existing Indebtedness, for working capital and for general corporate
purposes, PROVIDED that no more than $20,000,000 of principal amount of Loans
outstanding at any time shall be Loans the proceeds of which have been used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying Margin Stock (other than stock of the Borrower),
and PROVIDED FURTHER that in no event shall such proceeds be used in any manner
which would result in a violation of Regulation U or any other applicable law or
regulation.
SECTION 5.14. TRANSACTIONS WITH AFFILIATES. Neither the Borrower nor
any Consolidated Subsidiary will directly or indirectly engage in any
transaction (including, without limitation, the purchase, sale or exchange of
assets or the rendering of any service) with any Affiliate, except upon terms
that are no less favorable to the Borrower or such Consolidated Subsidiary than
those which might be obtained in an arm's-length transaction at the time with
Persons which are not Affiliates.
ARTICLE VI.
DEFAULTS
SECTION 6.1. EVENTS OF DEFAULT. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan or
any Reimbursement Obligation when the same shall become due and payable, whether
at the stated maturity or any accelerated date of maturity or at any other date
fixed for payment, or shall fail to pay within five days of the due date thereof
any interest, fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.7 to 5.14, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after written notice thereof has been given to the
Borrower by the Agent at the request of any Bank;
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(d) any representation, warranty, certification or statement made
by the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment
in respect of any Material Debt when due, taking into account any applicable
grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof;
(g) the Borrower or any Subsidiary or Subsidiaries in which the
Borrower's aggregate direct and indirect Investment is at least $20,000,000
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or themselves or its or
their debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or them or any substantial
part of its or their property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it or them, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its or
their debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary or Subsidiaries in which the Borrower's
aggregate direct and indirect Investment is at least $20,000,000 seeking
liquidation, reorganization or other relief with respect to it or them or its or
their debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or them or any substantial
part of its or their property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any subsidiary or subsidiaries
in which the Borrower's aggregate direct and indirect Investment is at least
$20,000,000 under the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $20,000,000 which it shall have
become liable to pay under Title IV of ERISA and such amount shall continue to
be unpaid and unstayed for a period of 10 days; or notice of intent to terminate
a Material Plan in a distress termination shall be filed under Title IV of ERISA
by any member of the ERISA Group, any plan administrator of any such Material
Plan or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
specified in ERISA Section 4042(a) (other than the condition specified in ERISA
Section 4042(a)(4)) shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA,
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with respect to, one or more Multiemployer Plans which could cause one or more
members of the ERISA Group to incur a current payment obligation in excess of
$25,000,000;
(j) a judgment or order for the payment of money in excess of
$20,000,000 shall be rendered against the Borrower or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 10
days; or
(k) any person or group of persons (within the meaning of Section
13 of the Securities Exchange Act of 1934, as amended), other than members of
the Cabot family or Persons holding securities for the benefit of members of the
Cabot family or employee benefit plans holding securities for the benefit of
Cabot employees, shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act)
of 25% or more of the outstanding shares of common stock of the Borrower; or,
during any period of 24 consecutive calendar months, individuals who were
directors of the Borrower on the first day of such period shall cease to
constitute a majority of the board of directors of the Borrower;
then, and in every such event, the Agent shall (i) if requested by
Banks having more than 50% in aggregate amount of the Commitments, by notice to
the Borrower terminate the Commitments and they shall thereupon terminate and
the Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit, and (ii) if requested by Banks holding Notes evidencing more
than 50% in aggregate principal amount of the Loans by notice to the Borrower
declare all amounts owing with respect to this Agreement, the Notes (together
with accrued interest thereon) and the other Loan Documents and all
Reimbursement Obligations to be, and they shall thereupon become, immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Borrower; PROVIDED that in
the case of any of the Events of Default specified in clause (g) or (h) above
with respect to the Borrower, without any notice to the Borrower or any other
act by the Agent or the Banks, the Commitments shall thereupon terminate and the
Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.2. NOTICE OF DEFAULT. The Agent shall give notice to the
Borrower under Section 6.1(c) promptly upon being requested to do so by any Bank
and shall thereupon notify all the Banks thereof.
SECTION 6.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to Section 6.1, each Bank, if
owed any amount with respect to the Loans or the Reimbursement Obligations, may
proceed to protect and enforce its rights by suit in equity, action at law or
other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement and the other Loan Documents
or any instrument pursuant to which the obligations to such Lender are
evidenced, including as permitted by applicable law the obtaining of the EX
PARTE appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Lender. No remedy herein conferred upon
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any Bank or the Agent or the holder of any Note or purchaser of any Letter of
Credit Participation is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
ARTICLE VII.
THE AGENT
SECTION 7.1. APPOINTMENT AND AUTHORIZATION.
(a) Each Bank irrevocably appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with all such powers as are reasonably
incidental thereto PROVIDED that no duties or responsibilities not expressly
assumed herein or therein shall be implied to have been assumed by the Agent;
(b) The relationship between the Agent and each of the Banks is
that of an independent contractor. The use of the term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent contractual relationship between the Agent and each of the Banks.
Nothing contained in this Agreement nor the other Loan Documents shall be
construed to create an agency, trust or other fiduciary relationship between the
Agent and any of the Banks;
(c) As an independent contractor empowered by the Banks to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless a
"representative" of the Banks, as that term is defined in Article 1 of the
Uniform Commercial Code, for purposes of actions for the benefit of the Banks
and the Agent with respect to any and all collateral security and guaranties
contemplated by the Loan Documents. Such actions include the designation of the
Agent as "SECURED PARTY", "MORTGAGEE" or the like on all financing statements
and other documents and instruments, whether recorded or otherwise, relating to
the attachment, perfection, priority or enforcement of any security interests,
mortgages or deeds of trust in collateral security intended to secure the
payment or performance of any of the obligations, all for the benefit of the
Banks and the Agent.
SECTION 7.2. AGENT AND AFFILIATES. Fleet National Bank shall have the
same rights and powers under this Agreement as any other Bank and may exercise
or refrain from exercising the same as though it were not the Agent, and Fleet
National Bank and its affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary or
affiliate of the Borrower as if it were not the Agent hereunder.
SECTION 7.3. ACTION BY AGENT. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not
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be required to take any action with respect to any Default, except as expressly
provided in Article VI.
SECTION 7.4. CONSULTATION WITH EXPERTS. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.5. LIABILITY OF AGENT. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent nor
any of its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of the Borrower; (iii) the satisfaction of
any condition specified in Article III, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or genuineness of
this Agreement, the Notes or any other instrument or writing furnished in
connection herewith. The Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 7.6. INDEMNIFICATION. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or omitted
by such indemnitees hereunder.
SECTION 7.7. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.8. SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Required Banks with the written consent of the Borrower, which
consent shall not be unreasonably withheld, shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 days after
the retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the
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Banks, appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon 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 hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
SECTION 7.9. AGENT'S FEE. The Borrower shall pay to the Agent for its
own account fees in the amounts and at the times set forth in the Fee Letter.
SECTION 7.10. DELINQUENT BANK. Notwithstanding anything to the contrary
contained in this Agreement or any of the other Loan Documents, any Bank that
fails (a) to make available to the Agent its PRO RATA share of any Committed
Loan or to purchase any Letter of Credit Participation or (b) to comply with the
provisions of Section 9.4 with respect to making dispositions and arrangements
with the other Banks, where such Bank's share of any payment received, whether
by setoff or otherwise, is in excess of its PRO RATA share of such payments due
and payable to all of the Banks, in each case as, when and to the full extent
required by the provisions of this Agreement, shall be deemed delinquent (a
"DELINQUENT LENDER") and shall be deemed a Delinquent Lender until such time as
such delinquency is satisfied. A Delinquent Lender shall be deemed to have
assigned any and all payments due to it from the Borrower, whether on account of
outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or
otherwise, to the remaining nondelinquent Banks for application to, and
reduction of, their respective PRO RATA shares of all outstanding Committed
Loans and Unpaid Reimbursement Obligations. The Delinquent Lender hereby
authorizes the Agent to distribute such payments to the nondelinquent Banks in
proportion to their respective PRO RATA shares of all outstanding Committed
Loans and Unpaid Reimbursement Obligations. A Delinquent Lender shall be deemed
to have satisfied in full a delinquency when and if, as a result of application
of the assigned payments to all outstanding Committed Loans and Unpaid
Reimbursement Obligations of the nondelinquent Banks, the Banks' respective PRO
RATA shares of all outstanding Committed Loans and Unpaid Reimbursement
Obligations have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
ARTICLE VIII.
CHANGE IN CIRCUMSTANCES
SECTION 8.1. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If on or prior to the first day of any Interest Period for any Borrowing
comprised of Euro-Dollar Loans or Money Market Loans:
(a) the Agent is advised by the Euro-Dollar Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to the
Euro-Dollar Reference Banks in the relevant market for such Interest Period, or
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(b) in the case of a Committed Borrowing, Banks having 50% or more
of the aggregate amount of the Commitments advise the Agent that the London
Interbank Offered Rate as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding their Euro-Dollar Loans for such
Interest Period, the Agent shall forthwith give notice thereof to the Borrower,
and the Banks, whereupon until the Agent notifies the Borrower that the
circumstances giving rise to such suspension no longer exist, the obligations of
the Banks to make Euro-Dollar Loans shall be suspended. Unless the Borrower
notifies the Agent at least two Domestic Business Days before the date of any
Borrowing of Euro-Dollar Loans or Money Market Loans for which a Notice of
Borrowing has previously been given that it elects not to borrow on such date,
(i) if such Borrowing of Euro-Dollar Loans or Money Market Loans is a Committed
Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and
(ii) if such Borrowing of Euro-Dollar Loans or Money Market Loans is a Money
Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing
shall bear interest for each day from and including the first day to but
excluding the last day of the Interest Period applicable thereto at the Base
Rate for such day.
SECTION 8.2. ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Bank (or its Euro-Dollar Lending office)
to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify
the Agent, the Agent shall forthwith give notice thereof to the other Banks and
the Borrower, whereupon until such Bank notifies the Borrower and the Agent that
the circumstances giving rise to such suspension no longer exist, the obligation
of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any
notice to the Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of each such Euro-Dollar
Loan, together with accrued interest thereon. Concurrently with prepaying each
such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.3. INCREASED COST AND REDUCED RETURN. (a) If on or after (x)
the date hereof, in the case of any Committed Loan, Letter of Credit or any
obligation to make Committed Loans or issue, extend or renew any Letter of
Credit or (y) the date of the related Money Market Quote, in the case of any
Money Market Loan, the adoption of any applicable law, rule or regulation, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its
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Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
impose, modify or deem applicable any reserve (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Euro-Dollar Loan any such requirement
with respect to which such Bank is entitled to compensation during the relevant
Interest Period under Section 2.16), special deposit, insurance assessment or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or shall impose
on any Bank (or its Applicable Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other condition
affecting its Euro-Dollar Loans or Money Market Loans, its Note, its Letter of
Credit or its obligation to make Euro-Dollar Loans or Money Market Loans and the
result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Euro-Dollar Loan or
Money Market Loan, or to reduce the amount of any sum received or receivable by
such Bank (or its Applicable Lending Office) under this Agreement or under any
Loan Document with respect thereto, by an amount deemed by such Bank to be
material, then, within 15 days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or reduction. The Borrower's
obligation under this Section 8.3(a) shall be limited to paying any costs which
the Bank incurs after or within 45 days prior to receipt by the Borrower of the
notice provided for under Section 8.3(c).
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Bank (or its Parent) as
a consequence of such Bank's obligations hereunder to a level below that which
such Bank (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank (or its Parent) for such reduction. The Borrower's
obligation under this Section 8.3(b) shall be limited to paying any costs which
the Bank incurs after or within 90 days prior to receipt by the Borrower of the
notice provided for under Section 8.3(c) unless such costs were incurred prior
to such 90 day period as a result of such present or future applicable law being
retroactive to a date which occurred prior to such 90 day period and such Bank
or, as the case may be, the Agent, has given notice to the Borrower of the
effectiveness of such law within 90 days after the effective date thereof.
(c) Each Bank will promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and
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will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. A certificate of any Bank claiming compensation under this Section and
setting forth the calculation in reasonable detail of the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error, PROVIDED that the Borrower shall have the right, within 60 days
of receipt of such certificate, to demonstrate that the amount set forth in such
certificate is incorrect and request an adjustment of the amount to be, or
therefore, paid. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
SECTION 8.4. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR LOANS
AND MONEY MARKET LOANS. If (i) the obligation of any Bank to make Euro-Dollar
Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded
compensation under Section 8.3(a) and the Borrower shall, by at least five
Euro-Dollar Business Days' prior notice to such Bank through the Agent, have
elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank
Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest
and principal shall be payable contemporaneously with the related Euro-Dollar
Loans and Money Market Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such Euro-Dollar
Loans and Money Market Loans shall be applied to repay its Base Rate Loans
instead.
SECTION 8.5. SUBSTITUTION OF BANK. If (i) any Bank has required the
Borrower to pay additional amounts to or for the account of any Bank pursuant to
Section 2.15, (ii) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.2 or (iii) any Bank has demanded compensation
under Section 8.3, the Borrower shall, upon at least three Euro-Dollar Business
Days' notice to the Agent, have the right, with the assistance of the Agent, to
seek a mutually satisfactory substitute bank or banks (which may be one or more
of the Banks) to purchase the Note and the Letter of Credit Participations and
assume the Commitment of such Bank.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of the Borrower or the Agent, at its address set forth on the signature
pages hereof, (y) in the case of any Bank, at its address or facsimile number
set forth in its Administrative Questionnaire or (z) in the case of any party,
such other address as such party may hereafter specify for the purpose by notice
to the Agent and the Borrower. Each such notice, request or other communication
shall be effective (i) if given by mail, when delivered or (ii) if given by any
other means, when delivered at the address
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specified in this Section; PROVIDED that notices to the Agent under Article II
or Article VIII shall not be effective until received.
SECTION 9.2. NO WAIVERS. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. EXPENSES: DOCUMENTARY TAXES; INDEMNIFICATION. (a) The
Borrower shall pay (i) all out-of-pocket expenses of the Agent and the
Arrangers, including fees and disbursements of special counsel for the Agent and
the Arrangers, in connection with the preparation of this Agreement, any waiver
or consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Agent and each Bank, including fees and disbursements of
counsel, in connection with such Event of Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom. The Borrower
shall indemnify each Bank against any transfer taxes (except in the case of any
voluntary transfer by a Bank to an Assignee or Participant hereunder),
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement or the Notes.
(b) The Borrower agrees to indemnify each Bank, the Agent and the
Arrangers and hold each such Person harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind, including, without
limitation, the reasonable fees and disbursements of counsel, which may be
incurred by such Person in connection with any investigative, administrative or
judicial proceeding (whether or not such Person shall be designated a party
thereto) relating to or arising out of this Agreement or any actual or proposed
use of proceeds of Loans hereunder; PROVIDED that no Person shall have the right
to be indemnified hereunder for its own gross negligence or willful misconduct
as determined by a court of competent jurisdiction.
SECTION 9.4. SETOFF. The Borrower hereby grants to the Agent and each
of the Banks a continuing lien, security interest and right of setoff as
security for all liabilities and obligations to the Agent and each Bank, whether
now existing or hereafter arising, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of the Agent or such Bank or any affiliate of any Bank
and their successors and assigns or in transit to any of them. Regardless of the
adequacy of any collateral, if any of the obligations owing from the Borrower to
the Agent or any Bank hereunder are due and payable and have not been paid or
any Event of Default shall have occurred, any deposits or other sums credited by
or due from any of the Banks to the Borrower and any securities or other
property of the Borrower in the possession of such Bank may be applied to or set
off by such Bank against the payment of such obligations and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to such Bank. ANY AND ALL
RIGHTS TO REQUIRE ANY BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES SUCH OBLIGATIONS, PRIOR TO EXERCISING ITS
RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE
BORROWER
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ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Banks
agree with each other Bank that (a) if an amount to be set off is to be applied
to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced
by the Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank, such amount shall be applied ratably to such other Indebtedness and
to the Indebtedness evidenced by all such Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank
shall receive from the Borrower, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of the claim evidenced
by the Notes held by, or constituting Reimbursement Obligations owed to, such
Bank by proceedings against the Borrower at law or in equity or by proof thereof
in bankruptcy, reorganization, liquidation, receivership or similar proceedings,
or otherwise, and shall retain and apply to the payment of the Note or Notes
held by, or Reimbursement Obligations owed to, such Bank any amount in excess of
its ratable portion of the payments received by all of the Banks with respect to
the Notes held by, and Reimbursement Obligations owed to, all of the Banks, such
Bank will make such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, PRO TANTO assignment of
claims, subrogation or otherwise as shall result in each Bank receiving in
respect of the Notes held by it or Reimbursement Obligations owed it, its
proportionate payment as contemplated by this Agreement; PROVIDED that if all or
any part of such excess payment is thereafter recovered from such Bank, such
disposition and arrangements shall be rescinded and the amount restored to the
extent of such recovery, but without interest.
SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement or
the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Required
Banks (and, if the rights or duties of the Agent are affected thereby, by the
Agent); PROVIDED that no such amendment or waiver shall, unless signed by all
the Banks, (i) increase the Commitment of any Bank or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or Reimbursement Obligation or any fees hereunder or reduce or forgive any
Reimbursement Obligation, (iii) postpone the date fixed for any payment of
principal of or interest on any Loan or any fees hereunder or for any reduction
or termination of any Commitment or postpone or extend the Termination Date or
(iv) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Banks, which shall be required
for the Banks or any of them to take any action under this Section or any other
provision of this Agreement or otherwise amend or waive this Section 9.5.
SECTION 9.6. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans and in all or a portion of such Bank's rights and
obligations under this Agreement and the other Loan Documents. In the event of
any such grant by a Bank of a participating interest to a Participant,
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whether or not upon notice to the Borrower and the Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrower
and the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; PROVIDED that such participation agreement may provide that such
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii) or (iii) of Section 9.5 which would directly
affect the Participant without the consent of the Participant. The Borrower
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Article VIII with respect to its
participating interest. An assignment or other transfer which is not permitted
by subsection (c) or (d) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in accordance
with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement (including all or a portion of its
Commitment Percentage and Commitment and the same portion of the Loans at the
time owing to it, the Notes held by it and its participating interest in the
risk relating to any Letters of Credit) (provided that any such assignment shall
be of an amount not less than $5,000,000), and such Assignee shall assume such
rights and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of EXHIBIT G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Agent and,
unless a Default or Event of Default shall have occurred and be continuing, the
Borrower, which consent by the Agent and the Borrower shall not be unreasonably
withheld; PROVIDED that if an Assignee is another Bank or is an affiliate of
such transferor Bank, no such consent shall be required; and PROVIDED FURTHER
that such assignment may, but need not, include rights of the transferor Bank in
respect of outstanding Money Market Loans. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Bank of an amount
equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required.
Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the Agent
an administrative fee for processing such assignment in the amount of $3,500. If
the Assignee is not incorporated under the laws of the United States of America
or a state thereof, it shall deliver to the Borrower and the Agent certification
as to exemption from deduction or withholding of any United States federal
income taxes in accordance with Section 2.15.
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(d) (i) At any time, the Borrower may request that the Total
Commitment be increased, provided that, without the prior written consent of the
Required Banks, (1) the Total Commitment shall at no time exceed $300,000,000
minus the aggregate amount of all reductions in the Total Commitment under this
Agreement previously made pursuant to Section 2.9 or 2.10; (2) the Borrower
shall not be entitled to make any such request more frequently than twice in
each 12-month period; and (3) each such request shall be in a minimum amount of
at least $25,000,000 and increments of $5,000,000 in excess thereof. Such
request shall be made in a written notice given to the Agent and the Banks by
the Borrower not fewer than ten (10) Domestic Business Days prior to the
proposed effective date of such increase, which notice (a "Commitment Increase
Notice") shall specify the amount of the proposed increase in the Total
Commitment and the proposed effective date of such increase. In the event of
such a Commitment Increase Notice, each of the Banks shall be given the
opportunity to participate in the requested increase ratably in proportion that
its Commitment bears to the Total Commitment under this Agreement, respectively.
No Bank shall have any obligation to increase its Commitment pursuant to a
Commitment Increase Notice. On or prior to a date that is five (5) Domestic
Business Days after receipt of the Commitment Increase Notice, each Bank shall
submit to the Agent a notice indicating the maximum amount by which it is
willing to increase its Commitment in connection with such Commitment Increase
Notice (any such notice to the Agent being herein a "Lender Increase Notice").
Any Bank which does not submit a Lender Increase Notice to the Agent prior to
the expiration of such five (5) Business Day period shall be deemed to have
denied any increase in its Commitment. In the event that the increases of
Commitments set forth in the Lender Increase Notices exceed the amount requested
by the Borrower in the Commitment Increase Notice, the Agent and the Arrangers
shall have the right, in consultation with the Borrower, to allocate the amount
of increases necessary to meet the Borrower's Commitment Increase Notice;
provided, no Bank shall be allocated an amount less than its pro rata share of
such increase based upon the proportion its Commitment bears to the Total
Commitment under this Agreement. In the event that the Lender Increase Notices
are less than the amount requested by the Borrower, no later than three (3)
Domestic Business Days prior to the proposed effect date the Borrower may notify
the Agent of any financial institution that shall have agreed to become a "Bank"
party hereto (an "Acceding Bank") in connection with the Commitment Increase
Notice. Any Acceding Bank shall be consented to by the Agent (which consent
shall not be unreasonably withheld). If the Borrower shall not have arranged any
Acceding Bank(s) to commit to the shortfall from the Lender Increase Notices,
then the Borrower shall be deemed to have reduced the amount of its Commitment
Increase Notice to the aggregate amount set forth in the Lender Increase
Notices. Based upon the Lender Increase Notices, any allocations made in
connection therewith and any notice regarding any Acceding Bank, if applicable,
the Agent shall notify the Borrower and the Banks on or before the Domestic
Business Day immediately prior to the proposed effective date of the amount of
each Bank's and Acceding Bank's Commitment (the "Effective Commitment Amount")
and the amount of the Total Commitment, which amounts shall be effective on the
following Domestic Business Day subject to the conditions set forth herein. Any
increase in the Total Commitment under this Agreement shall be subject to the
following conditions precedent: (i) as of the date of the Commitment Increase
Notice and as of the proposed effective date of the increase in the Total
Commitment under this Agreement, all representations and warranties shall be
true and correct in all material respects as though made on such date (unless
such representation and warranty is made as of a specific date, in which case,
such representation and warranty shall be true and
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correct as of such date) and no event shall have occurred and then be continuing
which constitutes a Default or Event of Default under this Agreement; (ii) the
Borrower, the Agent and each Acceding Bank shall have agreed to provide a
"Commitment" in support of such increase in the Total Commitment under this
Agreement, shall have executed and delivered an "Instrument of Accession"
substantially in the form of EXHIBIT H hereto; (iii) counsel for the Borrower
shall have provided to the Agent supplemental opinions in form and substance
reasonably satisfactory to the Agent and (iv) the Borrower and the Acceding
Bank(s) shall otherwise have executed and delivered such other instruments and
documents as may be required under Article III or that the Agent shall have
reasonably requested in connection with such increase. Upon satisfaction of the
conditions precedent to any increase in the Total Commitment under this
Agreement, the Agent shall promptly advise the Borrower and each Bank of the
effective date of such increase. Upon the effective date of any increase the
Total Commitment under this Agreement that is supported by an Acceding Bank,
such Acceding Bank shall be a party to this Agreement as a Bank and shall have
the rights and obligations of a Bank hereunder. In addition, on the effective
date, the Agent shall replace the existing Schedule 1 attached hereto with the
revised Schedule 1 reflecting such new Total Commitment and each Bank's
Commitment. Nothing contained herein shall constitute, or otherwise be deemed to
be, a commitment on the part of any Bank to increase its Commitment hereunder.
(ii) For purposes of this clause (ii), (A) the term "Buying
Lender(s)" shall mean (1) each Bank the Effective Commitment Amount of which is
greater than its Commitment prior to the effective date of any increase in the
Total Commitment under this Agreement and (2) each Acceding Bank that is
allocated an Effective Commitment Amount in connection with any Commitment
Increase Notice and (B) the term "Selling Lender(s)" shall mean each Bank whose
Commitment under this Agreement is not being increased from that in effect prior
to such increase in the Total Commitment under this Agreement as the case may
be. Effective on the effective date of any increase in the Total Commitment
under this Agreement pursuant to clause (i) above, each Selling Lender hereby
sells, grants, assigns and conveys to each Buying Lender, without recourse,
warranty or representation of any kind, except as specifically provided herein,
an undivided percentage in such Selling Lender's right, title and interest in
and to its outstanding Committed Loans in the respective amounts and percentages
necessary so that, from and after such sale, each such Selling Lender's
outstanding Committed Loans shall equal such Selling Lender's pro rata share
(calculated based upon the Effective Commitment Amounts) of the outstanding
Committed Loans under this Agreement as applicable. Effective on the effective
date of any increase in the Total Commitment under this Agreement pursuant to
clause (i) above, each Buying Lender hereby purchases and accepts such grant,
assignment and conveyance from the Selling Lenders. Each Buying Lender hereby
agrees that its respective purchase price for the portion of the outstanding
Committed Loans purchased hereby shall equal the respective amount necessary so
that, from and after such payments, each Buying Lender's outstanding Committed
Loans shall equal such Buying Lender's pro rata share (calculated based upon the
Effective Commitment Amounts) of the outstanding Committed Loans under this
Agreement. Such amount shall be payable on the effective date of the increase in
the Total Commitment under this Agreement by wire transfer of immediately
available funds to the Agent. The Agent, in turn, shall wire transfer any such
funds received to the Selling Lenders, in same day funds, for the sole account
of the Selling Lenders. Each Selling Lender hereby represents and warrants to
each Buying Lender that such Selling Lender owns the
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Committed Loans being sold and assigned hereby for its own account and has not
sold, transferred or encumbered any or all of its interests in such Committed
Loans, except for participations which will be extinguished upon payment to the
Selling Lender of any amount equal to the portion of the outstanding Committed
Loans being sold by such Selling Lender. Each Buying Lender hereby acknowledges
and agrees that, except for such Selling Lender's representations and warranties
contained in the foregoing sentence, each such Buying Lender has entered into
its Instrument of Accession with respect to such increase on the basis of its
own independent investigation and has not relied upon, and will not rely upon,
any explicit or implicit written or oral representation, warranty or other
statement of the Banks or the Agent concerning the authorization, execution,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or the other Loan Documents. The Borrower hereby agrees to
compensate each Selling Lender for all losses, expenses and liabilities incurred
by each Bank in connection with the sale and assignment of any Euro-Dollar
Borrowing hereunder on the terms and in the manner set forth in Section 2.13
hereof.
(e) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(f) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 2.15 or
8.3 than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 2.15, 8.2 or 8.3
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.7. COLLATERAL. Each of the Banks represents to the Agent and
each of the other Banks that it in good faith is not relying upon any Margin
Stock as collateral in the extension or maintenance of the credit provided for
in this Agreement.
SECTION 9.8. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.9. COUNTERPARTS: INTEGRATION. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
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SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. SEVERABILITY. The provisions of this Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
<PAGE>
-55-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CABOT CORPORATION
By ____________________________________
Name: Margaret J. Hanratty
Title: Vice President and Treasurer
2 Seaport Lane, Suite 1300
Boston, MA 02210
FLEET NATIONAL BANK, individually
and as Agent
By ___________________________________
Name: Harvey H. Thayer, Jr.
Title: Managing Director
CITIBANK, N.A.
By ___________________________________
Name:
Title:
COMMERZBANK AG, NEW YORK BRANCH
By ___________________________________
Name:
Title:
WACHOVIA BANK, N.A.
By ___________________________________
Name:
Title:
<PAGE>
-56-
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY
By ___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By ___________________________________
Name:
Title:
<PAGE>
-57-
Schedule 1
Banks; Commitments
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
BANK AMOUNT PERCENTAGE
---- ---------- ----------
<S> <C> <C>
Fleet National Bank $ 70,000,000 28%
100 Federal Street
Boston, Massachusetts 02110
Citibank, N.A. $ 50,000,000 20%
399 Park Avenue, 4th Floor, Zone 16
New York, New York 10043
Commerzbank AG $ 40,000,000 16%
2 World Financial Center, 34th Floor
New York, New York 10281
Wachovia Bank, N.A. $ 40,000,000 16%
One Boston Place, Suite 3005
New York, New York 10281
The Industrial Bank of Japan Trust Company $ 25,000,000 10%
1251 Avenue of the Americas, 31st Floor
New York, New York 10020
The Chase Manhattan Bank $ 25,000,000 10%
270 Park Avenue, 38th Floor
New York, New York 10017
TOTAL $250,000,000 100%
</Table>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>4
<FILENAME>b41315ccex12.txt
<DESCRIPTION>STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS...
<TEXT>
<PAGE>
EXHIBIT 12
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
<TABLE>
<CAPTION>
Years ended September 30
-----------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income from continuing operations $150 $157 $113 $159 $112
Distributed income of affiliated companies 11 8 19 7 10
Add fixed charges:
Interest on indebtedness 32 33 39 36 37
Capitalized interest 1 -- -- -- --
Portion of rents representative of the
interest factor 4 4 5 5 5
Preferred stock dividend 3 3 3 3 3
---- ---- ---- ---- ----
Income as adjusted $201 $205 $179 $210 $167
Fixed charges:
Interest on indebtedness $ 32 $ 33 $ 39 $ 36 $ 37
Capitalized interest 1 -- -- -- --
Portion of rents representative of the interest
factor 4 4 5 5 5
Preferred stock dividend 3 3 3 3 3
---- ---- ---- ---- ----
Total fixed charges $ 40 $ 40 $ 47 $ 44 $ 45
Ratio of earnings to fixed charges 5 5 4 5 4
==== ==== ==== ==== ====
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>b41315ccex21.txt
<DESCRIPTION>LIST OF SIGNIFICANT SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21
CABOT CORPORATION
SIGNIFICANT SUBSIDIARIES
As of September 30, 2001
<TABLE>
<CAPTION>
Name Jurisdiction
- ---- ------------
<S> <C>
Cabot Canada Ltd. Canada
Cabot Carbon Limited England
Cabot do Brasil Brazil
Cabot FSC, Inc. Barbados
Cabot G.B. Limited England
Cabot B.V. The Netherlands
Cabot International Capital Corporation Delaware
CDE Company Delaware
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>b41315ccex23.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (File No. 333-64787) and on Forms S-8 (File Nos.
033-28699, 033-52940, 033-53659, 333-03683, 333-06629, 333-19103, 333-19099 and
333-82353) of Cabot Corporation of our report dated October 23, 2001 relating to
the financial statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
-----------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 19, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>7
<FILENAME>b41315ccex24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors and officers of Cabot Corporation, hereby
severally constitute and appoint Ho-il Kim and John P. McGann, and each of them,
our true and lawful attorneys with full power to (i) sign for us and in our
names in the capacities indicated below Annual Reports on Form 10-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 of Cabot Corporation
for the fiscal year ended September 30, 2001, and any and all amendments,
thereto, thereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Reports and to any and all
amendments to said Reports; and (ii) to file such Reports and amendments with
the Securities and Exchange Commission and with applicable stock exchanges on
behalf of Cabot Corporation.
WITNESS our hands and common seal on the date set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JOHN G.L. CABOT Director November 9, 2001
- -------------------------------
John G.L. Cabot
/s/ JOHN S. CLARKESON Director November 9, 2001
- -------------------------------
John S. Clarkeson
/s/ ARTHUR L. GOLDSTEIN Director November 9, 2001
- -------------------------------
Arthur L. Goldstein
/s/ ROBERT P. HENDERSON Director November 9, 2001
- -------------------------------
Robert P. Henderson
/s/ GAUTAM S. KAJI Director November 9, 2001
- -------------------------------
Gautam S. Kaji
/s/ RODERICK C.G. MacLEOD Director November 9, 2001
- -------------------------------
Roderick C.G. MacLeod
/s/ JOHN H. McARTHUR Director November 9, 2001
- -------------------------------
John H. McArthur
/s/ JOHN F. O'BRIEN Director November 9, 2001
- -------------------------------
John F. O'Brien
/s/ RONALDO H. SCHMITZ Director November 9, 2001
- -------------------------------
Ronaldo H. Schmitz
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ LYDIA W. THOMAS Director November 9, 2001
- -------------------------------
Lydia W. Thomas
/s/ MARK S. WRIGHTON Director November 9, 2001
- -------------------------------
Mark S. Wrighton
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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