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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000897101-03-000040.txt : 20030123
<SEC-HEADER>0000897101-03-000040.hdr.sgml : 20030123
<ACCEPTANCE-DATETIME>20030123120815
ACCESSION NUMBER: 0000897101-03-000040
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20021025
FILED AS OF DATE: 20030123
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VALSPAR CORP
CENTRAL INDEX KEY: 0000102741
STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851]
IRS NUMBER: 362443580
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03011
FILM NUMBER: 03521849
BUSINESS ADDRESS:
STREET 1: 1101 THIRD ST SOUTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55415
BUSINESS PHONE: 6123327371
MAIL ADDRESS:
STREET 1: 1101 THIRD STREET SOUTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55415
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>valspar030264_10k.txt
<DESCRIPTION>THE VALSPAR CORPORATION FORM 10-K 10-25-2002
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 25, 2002 Commission file number 1-3011
---------------- -----------------------------
THE VALSPAR CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2443580
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
1101 Third Street South
Minneapolis, Minnesota 55415
---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 332-7371
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock, $.50 Par Value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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 and (2) has been subject to the filing requirements for
the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes __X__ No _____
The aggregate market value of the voting stock held by persons other than
officers, directors and more than 5% stockholders of the registrant as of April
26, 2002 was $1.8 billion based on the closing sales price of $45.98 per share
as reported on the New York Stock Exchange. As of December 31, 2002, 50,207,636
shares of Common Stock, $.50 par value per share (net of 10,013,676 shares in
treasury), were outstanding.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
---------------------- ---------------------
1. The Valspar Corporation Annual Report to Parts II and IV
Stockholders for fiscal year ended
October 25, 2002
2. The Valspar Corporation Notice of 2003 Part III
Annual Meeting of Stockholders
and Proxy Statement to be filed with
the Securities and Exchange
Commission within 120 days of fiscal
year ended October 25, 2002
<PAGE>
2
PART I
ITEM 1. BUSINESS
OVERVIEW
Founded in 1806, The Valspar Corporation ("Valspar" or the "Company") has grown
into a leading global paint and coatings manufacturer. The Company manufactures
and distributes a broad portfolio of products, including:
o Industrial coatings for factory application by industrial customers
and original equipment manufacturers (OEMs);
o Architectural paints, varnishes and stains for the do-it-yourself and
professional markets;
o Packaging coatings and inks for rigid containers, particularly food
and beverage cans;
o Automotive refinish and other specialty coatings, including high
performance floor coatings; and
o Specialty polymers, composites and colorants for use by coatings
manufacturers and others, including Valspar.
Prior to the acquisition of Lilly Industries, Inc. in December 2000, the Company
had two reportable segments: Coatings and Coatings Intermediates. Following the
acquisition, the Company included the former Lilly Industries operations in its
coatings segment, and the coatings intermediates segment no longer met the
quantitative criteria for separate reporting. The Company now refers to these
products as Other. The Company now operates its business in one reportable
segment: Coatings.
The Company manufactures and distributes a broad portfolio of coatings products.
The Industrial coatings product line includes decorative and protective coatings
for wood, metal, plastic and glass. The Architectural, Automotive and Specialty
("AAS") coatings product line includes interior and exterior decorative paints,
primers, varnishes and specialty decorative products, such as enamels, aerosols
and faux finishes for the do-it-yourself and professional markets, as well as
automotive refinish and high performance floor coatings. The Packaging coatings
product line includes coatings and inks for rigid packaging containers. The
Other products category includes specialty polymers, composites and colorants,
which are used internally and sold to other coatings manufacturers.
The following table shows the net sales by product line for the past three
fiscal years:
(Dollars in thousands) 2002 2001 2000
---------- ---------- ----------
Industrial Coatings $ 836,750 $ 734,302 $ 384,027
AAS Coatings 640,516 575,365 510,055
Packaging Coatings 511,585 482,238 483,548
Other Products 138,002 129,065 105,690
---------- ---------- ----------
$2,126,853 $1,920,970 $1,483,320
========== ========== ==========
<PAGE>
3
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
For additional financial information about the Company's operating segment, see
Note 14 to the Consolidated Financial Statements included in the 2002 Annual
Report to Stockholders, incorporated by reference into this Form 10-K.
ACQUISITIONS
Much of our growth has occurred during the last decade and, more recently, we
have expanded our business into international markets. A significant portion of
our business growth has been accomplished mostly through acquisitions. Since
1995, we have made more than 20 acquisitions (including purchases of equity in
joint ventures).
The most important of these acquisitions among those described above include our
acquisitions of Coates Coatings, Dexter Packaging and Lilly Industries. Our
purchase of Coates and its line of packaging coatings products was structured as
a series of acquisitions. In the first acquisition, completed in May 1996, we
acquired packaging coatings businesses in Europe, Australia and the United
States, marking a significant step in the globalization of our Packaging
coatings product line. This business had approximately $70 million in sales in
its last full fiscal year prior to our acquisition. We completed the second
Coates acquisition in January 1997, which included packaging coatings businesses
in Hong Kong and China which in the aggregate had approximately $10 million in
sales in 1996. We commenced the third acquisition in December 1997 by entering
into a joint venture for a packaging coatings business in South Africa. In
October 2000, we acquired a majority interest in this business, called
ValsparCoates. ValsparCoates had approximately $9 million in net sales in 1999,
the last full fiscal year before we completed this part of the Coates
acquisition. In July 2001, we completed the last in the series of Coates
acquisitions of packaging coatings businesses in Singapore, Malaysia, Indonesia
and Thailand. Sales for these businesses were $7 million in 2000.
In February 1999, we acquired the worldwide packaging and French industrial
coatings business of Dexter Corporation. The Dexter acquisition provided us with
additional packaging coatings facilities and businesses in Europe, the United
States and Asia. Dexter S.A., Dexter's industrial coatings subsidiary in France,
expanded our international presence in industrial coatings products. The Dexter
businesses that we acquired generated $212 million in sales in 1998, the last
full fiscal year prior to the acquisition.
In December 2000, we completed the acquisition of Lilly Industries, our largest
acquisition to date. We acquired all outstanding Lilly Industries shares for
$31.75 per share in cash in a transaction valued at $1.036 billion, including
the assumption of approximately $218 million of debt. At the time of the
acquisition, Lilly Industries was considered to be one of the five largest
industrial coatings and specialty chemical manufacturers in North America, with
reported net sales of $670 million for its fiscal year ended November 30, 2000.
Lilly Industries formulated, manufactured and marketed industrial coatings and
specialty chemicals to original equipment manufacturers for products such as
furniture, appliances, building products and transportation, agricultural and
construction equipment. Through the acquisition of Lilly Industries, we acquired
<PAGE>
4
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
manufacturing facilities and sales offices in the United States, Canada, Mexico,
the United Kingdom, Ireland, Germany, China, Malaysia, Taiwan, Singapore and
Australia. In connection with the acquisition, the U.S. Federal Trade Commission
required us to sell our former mirror coatings business, which has been replaced
with Lilly Industries' mirror coatings business. The Lilly Industries
acquisition was significant not only due to its size but because, through the
acquisition, we believe we have become the world's largest supplier of wood,
coil and mirror coatings and the leading North American supplier of
non-automotive industrial coatings. Lilly Industries also provided us with
complementary product lines and new technology, expanding the breadth and depth
of our Industrial coatings product line.
As we have done with past acquisitions, we took aggressive steps to integrate
Lilly Industries into the Company in order to take advantage of cost savings
synergies between the two businesses. Following the acquisition, we consolidated
raw material purchases, eliminated duplicative selling, general and
administrative services, reduced personnel and closed redundant production
facilities. To date, we have closed twelve facilities and relocated production
of more than 20 million gallons of coatings. Through these efforts, we have
achieved more than $90 million in cost savings over the last two years.
PRODUCTS
INDUSTRIAL COATINGS
Our Industrial coatings product line includes a broad range of decorative and
protective coatings for metal, wood, plastic and glass, primarily for sale to
OEM customers in North America, Australia, Europe and Asia. Products within our
Industrial coatings product line include fillers, primers, stains and topcoats
used by customers in a wide range of manufacturing industries, including
building products, transportation, appliances, automotive parts, furniture,
agricultural equipment, construction equipment and metal fabrication. We are
also a leading U.S. supplier of coatings that are applied to metal coils prior
to fabrication into pre-engineered products such as doors, building system
components, lighting fixtures and appliances.
We utilize a wide variety of coatings technologies to meet our customers'
industrial coatings requirements, including electro-deposition, powder, high
solids, water-borne and UV light-cured coatings. This broad technical capability
allows us to customize our Industrial coatings products to our customers'
specifications and to provide "one-stop" integrated solutions. For example, in
the appliance coatings market, we believe that we are one of only a small number
of coatings manufacturers that currently have the technological and
manufacturing capabilities to be a single source coatings supplier to appliance
customers.
<PAGE>
5
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
The major customers of our Industrial coatings product line are coatings
applicators. They apply our coatings to metal and, in some cases, fabricate or
process the coated metal further. We also market our products to the ultimate
users of the coated products because they often specify the coatings to be used
by the coatings applicator.
Through our acquisition of Lilly Industries, which reported fiscal 2000 net
sales of approximately $670 million primarily in the industrial coatings market
segment, we have significantly increased our presence in industrial coatings,
particularly in the furniture, appliance, building products, transportation,
agriculture and construction equipment and mirror manufacturing industries.
ARCHITECTURAL, AUTOMOTIVE AND SPECIALTY COATINGS
Our Architectural coatings products comprise the largest portion of our AAS
coatings product line. We offer a broad portfolio of interior and exterior
paints, stains, primers, varnishes and specialty decorative products, such as
enamels, aerosols and faux finishes, used primarily in the do-it-yourself
market. The primary distribution channels for these products are home centers,
mass merchants, hardware wholesalers and independent dealers, including Lowe's,
Wal-Mart and Do it Best stores. Due to the weather requirements of house
painting, sales of our AAS coatings product line are seasonal, with the lowest
levels occurring in the first quarter of our fiscal year when weather conditions
in much of North America are ill-suited for exterior painting.
We develop highly customized merchandising and marketing support programs for
our architectural coatings customers, enabling them to differentiate their paint
departments from their competitors' through point-of-purchase materials,
labeling and product and color selection assistance. Through such programs, we
offer branded product lines under the names Valspar, Plasti-Kote, Magicolor and
McCloskey. We also manufacture customer exclusive brands such as American
Tradition, One & Only, Severe Weather, Enterprise and Decorative Effects, in
addition to a variety of other private label brands. At key customers such as
Lowe's, we also offer additional marketing and customer support by providing
in-store employees to answer coatings questions. We have been recognized as the
paint supplier of the year seven times for Lowe's and twice for Wal-Mart.
Within the AAS coatings product line, we also manufacture and distribute
automotive refinish coatings under the brand names Valspar and House of Kolor
and aerosol spray paints for automotive distributors and large automotive supply
retailers under the brand names Plasti-Kote, Tempo and Mr. Spray. Major
customers for these products include large automotive supply retailers. We also
manufacture and distribute high performance floor coatings for commercial and
industrial applications.
<PAGE>
6
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
PACKAGING COATINGS
Packaging coatings comprise a portion of the global industrial coatings market
segment. Our Packaging coatings product line includes coatings for both interior
and exterior use in rigid packaging containers, principally food containers and
beverage cans for global customers. Interior coatings are used to protect the
interior surface of packaging materials from consumable products such as beer,
soda, fish and other food products, while exterior coatings enhance the
appearance of the packaging's exterior. We also produce coatings for aerosol and
paint cans, bottle crowns for glass and plastic packaging and glass bottle
closures. These coatings are required to meet the regulations of the U.S. Food
and Drug Administration and the U.S. Department of Agriculture, as well as the
laws and regulations of the other countries in which we sell our Packaging
coatings products.
Historically, we have been a strong competitor in the global packaging coatings
market segment, and we believe we became the world's largest supplier of rigid
packaging coatings following our 1996 acquisition of the Coates Coatings
business in the United States, Europe and Australia. In addition to providing us
with a global manufacturing presence, this acquisition provided us with external
packaging coatings and metal decorating ink technologies, thereby improving the
depth and breadth of our product line. Our 1999 acquisition of Dexter's
packaging coatings business further expanded our international presence,
providing us with additional manufacturing facilities in Europe and Asia. We
believe we are now the only coatings manufacturer in the global beverage can
market that supplies coatings for the entire can.
The major customers of our Packaging coatings product line include global
companies that apply our coatings in the production of rigid packaging products,
principally food containers and beverage cans. Consolidation and globalization
of our customers has been most apparent in this market segment, and we have
responded to these trends by offering a wide variety of packaging coatings
products throughout the world.
OTHER PRODUCTS
In addition to our main product lines, we make and sell specialty polymers,
composites and colorants. We produce specialty polymers and colorants for
internal use as well as for external sale to other coatings and building
products manufacturers. We believe our ability to develop proprietary polymers
for use in our coatings products provides us with an advantage over some of our
competitors who cannot produce these products themselves. Our composites
products include gelcoats and related products that are sold to boat
manufacturers, shower and tub manufacturers and others.
<PAGE>
7
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
COMPETITION
All aspects of the coatings business are highly competitive. We face strong
competitors in all areas of our business, some of which are larger and better
capitalized than we are.
Competition in the market segments in which we sell our Industrial and Packaging
coatings product lines is based on technical capabilities for specific product
formulation, the ability to meet customer delivery requirements, technical
assistance to the customer in product application, price and new technology
offerings. In addition, the markets for industrial coatings are becoming
increasingly global, and customers are looking for global coatings solutions. We
believe we can provide global coatings solutions to our customers in a manner in
which some of our competitors cannot because of our focus on industrial coatings
for the global market, our position as one of the world's largest industrial
coatings manufacturers and our commitment to developing innovative technologies.
Competition in the markets in which we sell our AAS coatings product line is
based on factors such as price, product quality, distribution and consumer
recognition. In this market segment, we offer highly customized merchandising
and marketing support programs to our AAS customers and have maintained product
recognition through high-quality and well-designed products. Relationships, such
as the ones we have with key retailers like Lowe's and Wal-Mart, are highly
important, as these firms account for most of the growth in the architectural
coatings market segment.
INTERNATIONAL JOINT VENTURES
The Company has formed various international joint ventures over the past
several years.
MEXICO AND CENTRAL AMERICA. In the Mexican and Central American markets, the
Company formed a joint venture in 1993 called Valspar-Marlux with Regio
Empresas, a Mexican corporation. While the initial focus of the joint venture
was to engage in the marketing, sales, distribution and technical service of
packaging, coil, wood and general metals coatings, during fiscal year 1996, the
joint venture started manufacturing coatings products at its plant in Monterrey,
Mexico. During 1998, the Company obtained a majority position of 51% in the
joint venture. In 1999, the Dexter acquisition added a manufacturing facility in
Mexico City. In November 2000, the Company acquired the remaining 49% interest
in the Valspar-Marlux joint venture. The former joint venture company is now
known as Valspar Mexicana.
INDIA AND JAPAN. Polycoat Powders Limited, a joint venture of the Company and
The Goodlass Nerolac Paint Co., Ltd. in India, manufactures decorative powder
coatings for the industrial coatings market in India. In 1999, the Company also
assumed Dexter's majority position in a joint venture with Rock Paint, a
Japanese company, to manufacture and sell packaging coatings in Japan.
<PAGE>
8
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
HONG KONG AND CHINA. The Company and China Merchants Hai Hong Holdings Co., Ltd.
formed a joint venture company in Hong Kong in 1995 for the purpose of
constructing a packaging coatings plant in the Shenzhen Economic Development
Zone in the Guangdong Province of China. This plant became operational at the
beginning of the 1997 fiscal year and currently manufactures and distributes the
Company's packaging coatings products in China, Hong Kong and other Southeast
Asian markets. The Company also acquired Coates' packaging coatings and metal
decoration inks business in Hong Kong and Guangzhou, China during 1997 and
Dexter's packaging coatings business in China during 1999. The Company has
consolidated these businesses with its Hong Kong joint venture.
SOUTH AMERICA. The Company formed a joint venture in 1997, called Valspar
Renner, with Renner Herrmann S.A., a Brazilian company. Valspar Renner supplies
packaging coatings and metal decorating inks to the South American market. In
December 2001, the Company acquired a plant from Renner Herrmann S.A. and then,
in January 2002, the Company acquired the remaining 50% interest in this joint
venture. This company is now known as The Valspar Corporation Limitada.
SOUTH AFRICA. In December 1997, as part of the Coates acquisition, the Company
acquired a 49% interest in a joint venture with Coates for packaging coatings in
South Africa. In February 1999, as part of the Dexter acquisition, the Company
acquired Dexter's majority position in a joint venture with Plascon (Pty)
Limited, a South African company, for packaging coatings in South Africa. As of
October 2000, the Company acquired Coates' 51% interest in the Valspar/Coates
joint venture and reorganized the businesses of both South African joint
ventures so that Valspar now has a majority position in a joint venture with
Plascon for a combined packaging coatings business in South Africa.
NETHERLANDS. In March 2002, the Company acquired from its joint venture partner
the remaining 20% interest in Dyflex B.V., a resin manufacturer in the
Netherlands.
RAW MATERIALS
We obtain raw materials from a number of suppliers. Many of these raw materials
are petroleum-based derivatives, minerals and metals. Under normal conditions,
all of these materials are generally available on the open market, although
prices and availability are subject to fluctuation. In general, higher oil and
gas costs result in higher prices for our raw materials. Because our raw
material costs average approximately 80% of our costs of goods sold, raw
material efficiency is a critical component of the cost of the products we
manufacture.
<PAGE>
9
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
PATENTS
Our policy is to seek patent protection for our products and manufacturing
processes when appropriate. We also license some patented technology from other
sources. Our business is not materially dependent upon licenses or similar
rights or on any single patent or group of related patents. Although we believe
our patent rights are valuable, our knowledge and trade secret information
regarding our manufacturing processes and materials have also been important in
maintaining our competitive position. As a condition of employment, we now
require domestic employees to sign a confidentiality agreement relating to
proprietary information.
While we make efforts to protect our trade secret information, others may
independently develop or otherwise acquire substantially equivalent proprietary
information or techniques or gain access to our proprietary technology or
disclose this technology. Any of these factors could adversely impact the value
of our proprietary trade secret information and harm our business.
SEASONALITY AND WORKING CAPITAL ITEMS
The Company's sales volume is traditionally lowest during the first quarter of
the fiscal year, primarily due to the buying cycle in the AAS coatings product
line. When sales are generally lowest, the Company builds inventory, the
financing for which is provided primarily by internally generated funds and
short-term and long-term credit lines discussed in Note 6 of the Notes to
Consolidated Financial Statements on page 18 of Valspar's 2002 Annual Report to
Stockholders incorporated by reference into this Form 10-K.
SIGNIFICANT CUSTOMERS
In 2002, the Company's sales to Lowe's Companies, Inc. exceeded 10% of net
sales, and our ten largest customers accounted for approximately 30% of net
sales.
BACKLOG AND GOVERNMENT CONTRACTS
The Company has no significant backlog of orders and generally is able to fill
orders on a current basis.
No material portion of the business of the Company is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
government.
RESEARCH AND DEVELOPMENT
Many of the products we offer today have been developed in the last five years.
We have adopted a "best practices" approach to technology development by
combining our technology efforts with those of the businesses we have acquired.
This has resulted in several successful new product
<PAGE>
10
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
developments. For example, we have advanced our Packaging coatings product line
technology by focusing on universal coatings for two-piece food cans, and we
have further advanced our Industrial coatings product line technology by
developing electro-coat technology. We have continued to expand our line of
polymers, and we now have a full portfolio of both water-based and conventional
polymers for industrial, architectural and packaging markets.
Research and development costs for fiscal 2002 were $65,924,000, representing a
13.5% increase over fiscal 2001 ($58,105,000). Fiscal 2001 costs increased 25.3%
over those of fiscal 2000 ($46,353,000). Our primary emphasis has been on
developing and refining emerging technologies in our Industrial and Packaging
coatings product lines.
ENVIRONMENTAL COMPLIANCE
The Company undertakes to comply with applicable regulations relating to
protection of the environment and workers' safety. Capital expenditures for this
purpose were not material in fiscal 2002, and capital expenditures for 2003 to
comply with existing laws and regulations are also not expected to be material.
EMPLOYEES
The Company employs approximately 7,000 persons, approximately 700 of whom are
members of unions.
FOREIGN OPERATIONS AND EXPORT SALES
Our foreign operations consist of a mixture of subsidiaries, joint ventures and,
to a lesser extent, licensing arrangements with independent third parties. In
recent years, we have placed greater emphasis on the development of our
majority-owned subsidiaries and joint ventures and a reduced emphasis on the use
of licensing arrangements. The bulk of our foreign operations have been acquired
in the last seven years. In 1996, we acquired the European, U.S. and Australian
metal decorating inks and packaging coatings business of Coates Coatings to
provide our packaging coatings customers with global support. In 1999, we
acquired the global packaging coatings business of the Dexter Corporation, along
with its industrial coatings business in France. This acquisition added several
manufacturing facilities throughout Europe and in Singapore. In December 2000,
we completed our acquisition of Lilly Industries, which had manufacturing
operations in Canada, Mexico, Europe and Asia. We now have manufacturing
operations in, among other countries, Australia, Brazil, Canada, China, France,
Germany, Ireland, Malaysia, Mexico, the Netherlands, Singapore, Switzerland,
Taiwan and the United Kingdom. We also have joint ventures in China, Hong Kong,
India, Japan and South Africa and sales offices in other foreign countries.
<PAGE>
11
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
Export sales are increasing as the Company's products are being recognized in
the global markets. During fiscal 2002, export sales from the United States
represented approximately 3.4% of the Company's business. The Company's various
acquisitions over the past three years have also increased revenues from foreign
subsidiaries and operations, which comprised 25% of the Company's total revenues
in fiscal 2002.
ITEM 2. PROPERTIES
The Company's principal offices in Minneapolis, Minnesota are owned. Operations
in North America are conducted at 38 locations, primarily in Illinois,
California, Texas, Indiana, North Carolina and Pennsylvania, with two plants
each in Canada and Mexico. Thirty-four plants with approximate square footage of
4,100,000 are owned, and four plants with square footage of 330,000 are leased.
Manufacturing operations in Europe are conducted at eight owned locations and
one leased location, with plants in the United Kingdom, France, Germany,
Ireland, the Netherlands and Switzerland with a combined square footage of
510,000. The Company owns one plant in South Africa, one plant in Brazil, two
plants in Australia and one plant in each of China, Malaysia and Taiwan with a
combined approximate square footage of 360,000. The Company leases one plant in
both Singapore and China with a combined square footage of approximately 35,000.
We believe our principal properties and facilities owned or leased are well
maintained, in good operating condition and adequate for the purposes for which
they are being used. Operating capacity varies by product line, but additional
production capacity is available for most product lines by increasing the number
of shifts worked.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
The Company is involved in various claims relating to environmental and waste
disposal matters at a number of current and former plant sites. The Company
engages or participates in remedial and other environmental compliance
activities at certain of these sites. At other sites, the Company has been named
as a potentially responsible party ("PRP") under federal and state environmental
laws for the remediation of hazardous waste. The Company's management reviews
each individual site, considering the number of parties involved, the level of
potential liability or contribution of the Company relative to the other
parties, the nature and magnitude of the wastes involved, the method and extent
of remediation, the potential insurance coverage, the estimated legal and
consulting expense with respect to each site and the time period over which any
costs would likely be incurred. Based on the above analysis, management
estimates the restoration or other clean-up costs and related claims for each
site. The estimates are based in part on discussion with other PRPs,
governmental agencies and engineering firms.
<PAGE>
12
PART I (CONTINUED)
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
The Company accrues appropriate reserves for potential environmental
liabilities, which are continuously reviewed and adjusted as additional
information becomes available. While uncertainties exist with respect to the
amounts and timing of the Company's ultimate environmental liabilities,
management believes that such liabilities, individually and in the aggregate,
will not have a material adverse effect on the Company's financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 8 through 10 of the Company's 2002
Annual Report to Stockholders incorporated by reference into this Form 10-K.
OTHER LEGAL MATTERS
The Company is one of a number of defendants in numerous proceedings that allege
that the plaintiffs suffered injuries or contracted diseases from exposure to
chemicals used in the production of some of the Company's products. The Company
is also a defendant in a number of other legal proceedings which it believes are
not out of the ordinary in a business of the type and size in which it is
engaged. The Company believes that these legal proceedings, individually and in
the aggregate, will not have a material adverse effect on the Company's business
or financial condition.
The Company, along with other companies, is a defendant in several legal
proceedings and claims brought against companies who are alleged to have
manufactured and sold paint containing lead pigment. The Company believes that
the litigation is without merit and is vigorously defending these matters. It is
possible that additional lawsuits or claims could be brought against the
Company. At this time, management cannot estimate the scope or amount of
potential costs or liabilities relating to these matters. However, based on the
outcome of such matters to date, and other factors, management does not believe
that the costs and liabilities of such matters will have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of fiscal year 2002 to a
vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all of the registrant's executive officers, all of whose
terms expire in February 2003, and the positions held by them are as listed
below. There are no family relationships between any of the officers or between
any officer and director.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard M. Rompala 56 Chairman since February 1998 and Chief Executive Officer since
October 1995
<PAGE>
13
PART I (CONTINUED)
Name Age Position
---- --- --------
John M. Ballbach 42 President and Chief Operating Officer since January 2002
Rolf Engh 49 Senior Vice President since November 1998, General Counsel and
Secretary since April 1993
Steven L. Erdahl 50 Executive Vice President, Industrial and Automotive Coatings since
January 2002
William L. Mansfield 54 Executive Vice President, Architectural, Packaging and Specialty
Coatings since January 2002
Paul C. Reyelts 56 Senior Vice President, Finance and Chief Financial Officer since
November 1998
</TABLE>
The foregoing executive officers have served in the stated capacity for the
registrant during the past five years, except for the following:
Prior to January 2002, Mr. Rompala also was President from March 1994 to
December 2001.
Prior to January 2002, Mr. Ballbach was Senior Vice President - Operations,
E-Commerce, EPS and Color Corporation of America since December 2000. Prior to
December 2000, Mr. Ballbach was Senior Vice President - Operations, EPS and
Color Corporation of America since February 2000. Prior to February 2000, Mr.
Ballbach was Group Vice President - Packaging since November 1998 and President
- - Europe, Middle East and South Africa since June 1996.
Prior to November 1998, Mr. Engh was Vice President - International since
September 1993.
Prior to January 2002, Mr. Erdahl was Senior Vice President - Packaging and
Industrial Coatings since February 2000. Prior to February 2000, Mr. Erdahl was
Senior Vice President - Operations since November 1998. Prior to November 1998,
Mr. Erdahl was Vice President - Industrial Coatings Group since June 1991.
Prior to January 2002, Mr. Mansfield was Senior Vice President - Architectural,
Automotive and Specialty Coatings since February 2000. Prior to February 2000,
Mr. Mansfield was Senior Vice President - Packaging and Industrial Coatings
since November 1998. Prior to November 1998, Mr. Mansfield was Vice President -
Packaging Coatings Group since February 1991.
Prior to November 1998, Mr. Reyelts was Vice President - Finance since April
1982.
<PAGE>
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The information in the section titled "Stock Information and Dividends" on pages
6 and 7 of Valspar's 2002 Annual Report to Stockholders is incorporated herein
by reference. All market prices indicated in this section represent transactions
on the New York Stock Exchange. The number of record holders of the Company's
Common Stock at December 31, 2002 was 1,642.
The quarterly dividend declared December 11, 2002, which was paid January 15,
2003 to Common Stockholders of record December 31, 2002, was increased to
15(cent) per share.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information in the section titled "Eleven Year Financial Summary" for the
years 1998 through 2002 on pages 6 and 7 of Valspar's 2002 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 8 through 10 of
Valspar's 2002 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk" on page 10 of
Valspar's 2002 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements and notes thereto on pages 11 through 22
of Valspar's 2002 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
<PAGE>
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information regarding directors set forth on pages 2 through 4 of Valspar's
Proxy Statement dated January 24, 2003 is incorporated herein by reference. The
information in the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 7 of Valspar's Proxy Statement dated January 24, 2003 is
incorporated herein by reference. The information regarding executive officers
is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information in the section titled "Executive Compensation" on pages 8
through 11 and the section titled "Director Compensation" on pages 5 and 6 of
Valspar's Proxy Statement dated January 24, 2003 is incorporated herein by
reference. The information in the section titled "Termination of Employment and
Change in Control Agreements" on pages 11 and 12 of Valspar's Proxy Statement
dated January 24, 2003 is incorporated herein by reference. The information on
pages 12 through 18 of Valspar's Proxy Statement dated January 24, 2003 is not
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information in the section titled "Share Ownership of Certain Beneficial
Owners" and "Share Ownership of Management" on pages 24 and 25 of Valspar's
Proxy Statement dated January 24, 2003 is incorporated herein by reference. The
information in the section titled "Equity Compensation Plans" on page 11 of
Valspar's Proxy Statement dated January 24, 2003 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information in the section titled "Certain Transactions" on pages 6 and 7 of
Valspar's Proxy Statement dated January 24, 2003 is incorporated herein by
reference.
ITEM 14. CONTROLS AND PROCEDURES
-----------------------
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within 90 days of the filing date of this report.
Based on their evaluation, our chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures are
effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
<PAGE>
16
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(a) For financial statements and the financial statement schedule filed as a
part of this report, reference is made to "Index to Financial Statements
and Financial Statement Schedule" on page F-2 of this report. For a list
of exhibits filed as a part of this report, see Item 15(c) below.
Compensatory Plans listed in Item 15(c) are denoted by a double asterisk.
(b) During the three months ended October 25, 2002, a report on Form 8-K,
dated August 14, 2002, was filed on August 14, 2002, under Item 5 - Other
Events and Regulation FD Disclosure.
(c) The following exhibits are filed as part of this report.
Exhibit
No. Description
--------------------------------------------------------------------------
2(a)(4) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT DATED
MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION HAS
BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)
2(b)(6) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT
BETWEEN DEXTER CORPORATION AND THE REGISTRANT MADE AND
ENTERED INTO AS OF AUGUST 21, 1998, AS AMENDED BY THE FIRST
AMENDMENT TO DEXTER COATINGS BUSINESS PURCHASE AND SALE
AGREEMENT DATED FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2,
CERTAIN INFORMATION HAS BEEN DELETED AND FILED SEPARATELY
WITH THE COMMISSION)
2(c)(10) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000
3(a)(5) CERTIFICATE OF INCORPORATION - as amended to and
including June 30, 1970, with further amendments to Article
Four dated February 29, 1984, February 25, 1986, February 26,
1992 and February 26, 1997 and to Article Eleven dated
February 25, 1987
3(b)(5) BY-LAWS - as amended to and including October 15, 1997
4(a)(8) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS RIGHTS AGENT
<PAGE>
17
PART IV (CONTINUED)
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
--------------------------------------------------------------------------
4(b)* INDENTURE DATED APRIL 24, 2002, BETWEEN THE REGISTRANT AND
BANK ONE TRUST COMPANY, N.A., AS TRUSTEE, RELATING TO
REGISTRANT'S 6% NOTES DUE 2007
4(c)* FIRST SUPPLEMENTAL INDENTURE DATED APRIL 30, 2002 TO
INDENTURE DATED APRIL 24, 2002, BETWEEN THE REGISTRANT AND
BANK ONE TRUST COMPANY, N.A., AS TRUSTEE, RELATING TO
REGISTRANT'S 6% NOTES DUE 2007
4(d)* FORM OF REGISTRANT'S 6% NOTES DUE 2007
4(e)(13) INDENTURE DATED NOVEMBER 10, 1997 BETWEEN LILLY INDUSTRIES,
INC. AND HARRIS TRUST AND SAVINGS BANK RELATING TO THE
ISSUANCE BY LILLY INDUSTRIES, INC. OF $100 MILLION OF 7.75%
SENIOR NOTES DUE 2007. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, the Registrant Agrees to Furnish to the
Commission on Request Copies of All Other Instruments
Relating to the 7.75% Senior Notes
10(a)(1) THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(b)(12) THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN - as amended
to and including December 12, 2001**
10(c)(2) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(d)(7) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN - as
amended to and including October 20, 1999**
10(e)(12) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS - as amended to and including December 11, 2001**
10(f)(5) THE VALSPAR CORPORATION ANNUAL BONUS PLAN - as amended August
19, 1997**
10(g)(3) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
<PAGE>
18
PART IV (CONTINUED)
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
--------------------------------------------------------------------------
10(h)* THE VALSPAR CORPORATION 2001 STOCK INCENTIVE PLAN**
10(i)* THE VALSPAR CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN FOR RICHARD ROMPALA**
10(j)* THE VALSPAR CORPORATION KEY EMPLOYEE LONG-TERM INCENTIVE
BONUS PROGRAM**
10(k)(9) CHANGE OF CONTROL AGREEMENT BETWEEN THE REGISTRANT AND THE
COMPANY'S NAMED EXECUTIVES
10(l)(11) 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
10(m)(11) FIVE-YEAR CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000
AMONG THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE
REGISTRANT AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE
AGENT
13* 2002 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors - Ernst & Young LLP
99(a)* Certification of Chief Executive Officer
99(b)* Certification of Chief Financial Officer
-----------
1 As filed with Form 10-K for the period ended
October 31, 1981.
2 As filed with Form 10-K for the period ended October
25, 1991; amendment filed with Form 10-K for the period ended
October 31, 1997.
<PAGE>
19
PART IV (CONTINUED)
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(CONTINUED)
(c) Index of Exhibits (continued)
Exhibit
No. Description
--------------------------------------------------------------------------
3 As filed with Form 10-K for the period ended October 30,
1992.
4 Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
May 17, 1996 and with Form 8-K/A filed on July 16, 1996.
5 As filed with Form 10-K for the period ended October 31,
1997.
6 Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
March 15, 1999 and with Form 8-K/A filed on May 12, 1999.
7 As filed with Form 10-K for the period ended October 29,
1999.
8 Incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.
9 Incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended April 28, 2000.
10 Incorporated by reference to Exhibit 1 to Form 8-K filed on
January 4, 2000.
11 As filed with Form 10-K for the period ended October 27,
2000; amendment filed with Form 10-K for the period ended
October 26, 2001.
12 As filed with Form 10-K for the period ended
October 26, 2001.
13 This exhibit is incorporated by reference to Exhibit 4.1 to
Lilly Industries, Inc.'s Registration Statement on Form S-4
filed with the Commission on December 5, 1997 (Commission No.
333-41587).
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed
pursuant to Item 15(c) of Form 10-K.
Portions of the 2003 Proxy Statement are incorporated herein by reference
as set forth in Items 10, 11, 12 and 13 of this report. Only those
portions expressly incorporated by reference herein shall be deemed filed
with the Commission.
(d) See page F-2 of this report.
<PAGE>
20
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.
<TABLE>
<S> <C>
THE VALSPAR CORPORATION
/s/Rolf Engh 1/21/03
-----------------------------------------------
Rolf Engh, Secretary
Pursuant to the requirements 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.
/s/Richard M. Rompala 1/21/03 /s/Susan S. Boren 1/21/03
- ------------------------------------------------- -----------------------------------------------
Richard M. Rompala, Director Susan S. Boren, Director
Chairman and Chief Executive Officer
(principal executive officer) /s/Jeffrey H. Curler 1/21/03
-----------------------------------------------
Jeffrey H. Curler, Director
/s/Paul C. Reyelts 1/21/03
- ------------------------------------------------- /s/Charles W. Gaillard 1/21/03
Paul C. Reyelts, Senior Vice President, -----------------------------------------------
Finance and Chief Financial Officer Charles W. Gaillard, Director
(principal financial officer)
/s/Mae C. Jemison 1/21/03
-----------------------------------------------
/s/Lori A. Walker 1/21/03 Mae C. Jemison, Director
- -------------------------------------------------
Lori A. Walker, Vice President and /s/Thomas R. McBurney 1/21/03
Controller (principal accounting officer) -----------------------------------------------
Thomas R. McBurney, Director
/s/Gregory R. Palen 1/21/03
-----------------------------------------------
Gregory R. Palen, Director
-----------------------------------------------
Lawrence Perlman, Director
/s/Edward B. Pollak 1/21/03
-----------------------------------------------
Edward B. Pollak, Director
/s/Michael P. Sullivan 1/21/03
-----------------------------------------------
Michael P. Sullivan, Director
/s/Richard L. White 1/21/03
-----------------------------------------------
Richard L. White, Director
</TABLE>
<PAGE>
21
CERTIFICATIONS
I, Richard M. Rompala, certify that:
1. I have reviewed this annual report on Form 10-K of The Valspar Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
<PAGE>
22
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 1/21/03 /s/Richard M. Rompala
Richard M. Rompala
Chairman and Chief Executive Officer
I, Paul C. Reyelts, certify that:
1. I have reviewed this annual report on Form 10-K of The Valspar Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
<PAGE>
23
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 1/21/03 /s/Paul C. Reyelts
Paul C. Reyelts
Senior Vice President and Chief
Financial Officer
<PAGE>
F-1
Annual Report on Form 10-K
Item 15(a)(1) and (2), (c) and (d)
Financial Statements and
Financial Statement Schedule
Certain Exhibits
Year ended October 25, 2002
THE VALSPAR CORPORATION
Minneapolis, Minnesota
<PAGE>
F-2
The Valspar Corporation
Form 10-K - Item 15(a)(1) and (2) and Item 15(d)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of The Valspar Corporation and
subsidiaries are incorporated in Part II, Item 8, and Part IV, Item 15(a), of
this report by reference to the Registrant's Annual Report to Stockholders for
the year ended October 25, 2002:
<TABLE>
<CAPTION>
Pages in
Annual Report
-------------
<S> <C>
Report of Independent Auditors................................................................... 23
Financial Statements:
Consolidated Balance Sheets - October 25, 2002 and October 26, 2001.......................... 11
Consolidated Statements of Income - Years ended October 25, 2002,
October 26, 2001 and October 27, 2000 .................................................... 12
Consolidated Statements of Changes in Stockholders' Equity - Years
ended October 25, 2002, October 26, 2001 and October 27, 2000............................. 13
Consolidated Statements of Cash Flows -Years ended October 25, 2002,
October 26, 2001 and October 27, 2000..................................................... 14
Notes to Consolidated Financial Statements................................................... 15-22
Selected Quarterly Financial Data (Unaudited).................................................... 22
</TABLE>
The following consolidated financial statement schedule should be read in
conjunction with the consolidated financial statements referred to above:
Financial Statement Schedule:
Years ended October 25, 2002, October 26, 2001 and October 27, 2000
<TABLE>
<CAPTION>
Schedule Page
- -------- ----
<S> <C>
II Valuation and Qualifying Accounts and Reserves..................................... F-3
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE>
F-3
The Valspar Corporation
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
- -------------------------------------- ------------ ---------- ---------------- ------------- ---------------
COL. A COL. B COL. C COL. C COL. D COL. E
- -------------------------------------- ------------ ---------- ---------------- ------------- ---------------
Additions
--------------------------
(1) (2)
Balance at Charged to Charged to Other
Beginning of Expense or Accounts - Deductions - Balance at End
Description Period (Income) Describe Describe of Period
- -------------------------------------- ------------ ---------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Year ended October 25, 2002 $10,212,000 $14,222,873 $7,757,724 (1) $17,013,000
(335,851) (2)
Year ended October 26, 2001 4,925,000 8,090,468 $1,722,000 (3) 4,714,694 (1) 10,212,000
(189,226) (2)
Year ended October 27, 2000 4,801,000 999,313 1,084,064 (1) 4,925,000
(208,751) (2)
</TABLE>
(1) Uncollectible accounts written off.
(2) Recoveries on accounts previously written off.
(3) Consists principally of amounts relating to businesses acquired.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
--------------------------------------------------------------------------
2(a)(4) ACQUISITION AGREEMENT BETWEEN COATES BROTHERS PLC AND THE
REGISTRANT MADE AND ENTERED INTO AS OF FEBRUARY 26, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE ACQUISITION AGREEMENT DATED
MAY 2, 1996 (PURSUANT TO RULE 24b-2, CERTAIN INFORMATION HAS
BEEN DELETED AND FILED SEPARATELY WITH THE COMMISSION)
2(b)(6) DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT BETWEEN
DEXTER CORPORATION AND THE REGISTRANT MADE AND ENTERED INTO
AS OF AUGUST 21, 1998, AS AMENDED BY THE FIRST AMENDMENT TO
DEXTER COATINGS BUSINESS PURCHASE AND SALE AGREEMENT DATED
FEBRUARY 26, 1999 (PURSUANT TO RULE 24b-2, CERTAIN
INFORMATION HAS BEEN DELETED AND FILED SEPARATELY WITH THE
COMMISSION)
2(c)(10) AGREEMENT AND PLAN OF MERGER BETWEEN LILLY INDUSTRIES, INC.,
VAL ACQUISITION CORP. (A WHOLLY-OWNED SUBSIDIARY OF THE
REGISTRANT) AND THE REGISTRANT MADE AND ENTERED INTO AS OF
JUNE 23, 2000
3(a)(5) CERTIFICATE OF INCORPORATION - as amended to and including
June 30, 1970, with further amendments to Article Four dated
February 29, 1984, February 25, 1986, February 26, 1992 and
February 26, 1997 and to Article Eleven dated February 25,
1987
3(b)(5) BY-LAWS - as amended to and including October 15, 1997
4(a)(8) RIGHTS AGREEMENT DATED AS OF MAY 1, 2000, BETWEEN THE
REGISTRANT AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT
4(b)* INDENTURE DATED APRIL 24, 2002, BETWEEN THE REGISTRANT AND
BANK ONE TRUST COMPANY, N.A., AS TRUSTEE, RELATING TO
REGISTRANT'S 6% NOTES DUE 2007
4(c)* FIRST SUPPLEMENTAL INDENTURE DATED APRIL 30, 2002 TO
INDENTURE DATED APRIL 24, 2002, BETWEEN THE REGISTRANT AND
BANK ONE TRUST COMPANY, N.A., AS TRUSTEE, RELATING TO
REGISTRANT'S 6% NOTES DUE 2007
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
--------------------------------------------------------------------------
4(d)* FORM OF REGISTRANT'S 6% NOTES DUE 2007
4(e)(l3) INDENTURE DATED NOVEMBER 10, 1997 BETWEEN LILLY INDUSTRIES,
INC. AND HARRIS TRUST AND SAVINGS BANK RELATING TO THE
ISSUANCE BY LILLY INDUSTRIES, INC. OF $100 MILLION OF 7.75%
SENIOR NOTES DUE 2007. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, the Registrant Agrees to Furnish to the
Commission on Request Copies of All Other Instruments
Relating to the 7.75% Senior Notes
10(a)(l) THE VALSPAR CORPORATION KEY EMPLOYEES' SUPPLEMENTARY
RETIREMENT PLAN**
10(b)(12) THE VALSPAR CORPORATION 1991 STOCK OPTION PLAN - as amended
to and including December 12, 2001**
10(c)(2) THE VALSPAR CORPORATION LEVERAGED EQUITY PURCHASE PLAN**
10(d)(7) THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN - as
amended to and including October 20, 1999**
10(e)(12) THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS - as amended to and including December 11, 2001**
10(f)(5) THE VALSPAR CORPORATION ANNUAL BONUS PLAN - as amended August
19, 1997**
10(g)(3) THE VALSPAR CORPORATION INCENTIVE BONUS PLAN**
10(h)* THE VALSPAR CORPORATION 2001 STOCK INCENTIVE PLAN**
10(i)* THE VALSPAR CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN FOR RICHARD ROMPALA**
10(j)* THE VALSPAR CORPORATION KEY EMPLOYEE LONG-TERM INCENTIVE
BONUS PROGRAM**
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
--------------------------------------------------------------------------
10(k)(9) CHANGE OF CONTROL AGREEMENT BETWEEN THE REGISTRANT AND THE
COMPANY'S NAMED EXECUTIVES
10(l)(11) 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000 AMONG
THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE REGISTRANT AND
THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT
10(m)(11) FIVE-YEAR CREDIT AGREEMENT DATED AS OF NOVEMBER 17, 2000
AMONG THE REGISTRANT AND CERTAIN SUBSIDIARIES OF THE
REGISTRANT AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE
AGENT
13* 2002 Annual Report to Stockholders (only those portions
expressly incorporated by reference herein shall be deemed
filed with the Commission)
21* Subsidiaries of the Registrant
23(a)* Consent of Independent Auditors - Ernst & Young LLP
99(a)* Certification of Chief Executive Officer
99(b)* Certification of Chief Financial Officer
-----------
1 As filed with Form 10-K for the period ended
October 31, 1981.
2 As filed with Form 10-K for the period ended October 25,
1991; amendment filed with Form 10-K for the period ended
October 31, 1997.
3 As filed with Form 10-K for the period ended
October 30, 1992.
4 Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
May 17, 1996 and with Form 8-K/A filed on July 16, 1996.
5 As filed with Form 10-K for the period ended October 31,
1997.
6 Incorporated by reference to Exhibit 2.1 to Form 8-K filed on
March 15, 1999 and with Form 8-K/A filed on May 12, 1999.
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS REPORT
THE VALSPAR CORPORATION
Exhibit
No. Description
--------------------------------------------------------------------------
7 As filed with Form 10-K for the period ended
October 29, 1999.
8 Incorporated by reference to Exhibit 2.1 to Form 8-A filed on
May 3, 2000.
9 Incorporated by reference to Exhibit 10(a) to Form 10Q for
the quarter ended April 28, 2000.
10 Incorporated by reference to Exhibit 1 to Form 8-K filed on
January 4, 2000.
11 As filed with Form 10-K for the period ended October
27, 2000; amendment filed with Form 10-K for the period ended
October 26, 2001.
12 As filed with Form 10-K for the period ended
October 26, 2001.
13 This exhibit is incorporated by reference to Exhibit 4.1 to
Lilly Industries, Inc.'s Registration Statement on Form S-4
filed with the Commission on December 5, 1997
(Commission No. 333-41587).
* As filed with this Form 10-K.
** Compensatory Plan or arrangement required to be filed
pursuant to Item 15(c) of Form 10-K.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.B
<SEQUENCE>4
<FILENAME>valspar030264_ex4b.txt
<DESCRIPTION>INDENTURE
<TEXT>
Exhibit 4(b)
THE VALSPAR CORPORATION
AS ISSUER
TO
BANK ONE TRUST COMPANY, N.A.
AS TRUSTEE
INDENTURE
DEBT SECURITIES
APRIL 24, 2002
<PAGE>
DEBT SECURITIES
THE VALSPAR CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS AMENDED,
AND INDENTURE, DATED AS OF APRIL 24, 2002
Trust Indenture Act Indenture
Section Section
------- -------
ss.310 (a)(1) .................................... 608
ss.310 (a)(2) .................................... 608
ss.310 (a)(3) .................................... Inapplicable
ss.310 (a)(4) .................................... Inapplicable
(b) .................................... 605
.................................... 609
ss.311 .................................... 605
ss.312 (a) .................................... 701
.................................... 702
(b) .................................... 702
(c) .................................... 702
ss.313 (a) .................................... 703
(b)(1) .................................... Inapplicable
(b)(2) .................................... 703
(c) .................................... 703
(d) .................................... 703
ss.314 (a) .................................... 704
.................................... 1011
(b) .................................... Inapplicable
(c)(1) .................................... 102
(c)(2) .................................... 102
(c)(3) .................................... Inapplicable
(d) .................................... Inapplicable
(e) .................................... 102
ss.315 (a) .................................... 601
.................................... 603
(b) .................................... 602
(c) .................................... 601
(d) .................................... 601
.................................... 603
ss.316 (a)(1)(A).................................... 512
(a)(1)(B).................................... 513
(a)(2) .................................... Inapplicable
(b) .................................... 508
(c) .................................... 104
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<PAGE>
Trust Indenture Act Indenture
Section Section
------- -------
ss.317 (a)(1) .................................... 503
(a)(2) .................................... 504
(b) .................................... 1003
ss.318 (a) .................................... 108
- ------------------------------------------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION......................................................................................................1
Section 101. Definitions....................................................................................1
Acceleration Event.................................................................................2
Acquired Indebtedness..............................................................................2
Act................................................................................................2
Affiliate..........................................................................................2
Authenticating Agent...............................................................................2
Authorized Newspaper...............................................................................2
Board of Directors.................................................................................2
Board Resolution...................................................................................2
Business Day.......................................................................................3
Certificate of Authentication......................................................................3
Certificated Note..................................................................................3
Commission.........................................................................................3
Company............................................................................................3
Company Request....................................................................................3
Company Order......................................................................................3
Consolidated.......................................................................................3
Consolidated Subsidiary............................................................................3
Corporate Trust Office.............................................................................3
Corporation........................................................................................3
Defaulted Interest.................................................................................3
Definitive Note....................................................................................4
Depositary.........................................................................................4
Derivative Obligations.............................................................................4
Event of Default...................................................................................4
Global Note........................................................................................4
Government Obligations.............................................................................4
Holder.............................................................................................4
Indenture..........................................................................................4
Independent Public Accountants.....................................................................5
Interest Payment Date..............................................................................5
Issue Date.........................................................................................5
Legal Holiday......................................................................................5
Maturity...........................................................................................5
Money..............................................................................................5
Note...............................................................................................6
Notes..............................................................................................6
Note Register......................................................................................6
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<PAGE>
Note Registrar.....................................................................................6
Office or Agency...................................................................................6
Officers' Certificate..............................................................................6
Opinion of Counsel.................................................................................6
Original Issue Discount Note.......................................................................6
Outstanding........................................................................................6
Paying Agent.......................................................................................7
Periodic Offering..................................................................................7
Person.............................................................................................7
Place of Payment...................................................................................7
Predecessor Note...................................................................................7
Regular Record Date................................................................................7
Responsible Officer................................................................................7
Restricted Payment.................................................................................8
Securities Act.....................................................................................8
Senior Indebtedness................................................................................8
Special Record Date................................................................................8
Stated Maturity....................................................................................8
Subsidiary.........................................................................................8
Transfer Restrictions..............................................................................8
Trust Indenture Act................................................................................8
Trustee............................................................................................8
United States......................................................................................9
Vice President.....................................................................................9
Voting Stock.......................................................................................9
Section 102. Compliance Certificates and Opinions...........................................................9
Section 103. Form of Documents Delivered to Trustee........................................................10
Section 104. Acts of Holders...............................................................................10
Section 105. Notices, Etc. to Trustee and Company..........................................................12
Section 106. Notice to Holders of Notes; Waiver............................................................12
Section 107. Language of Notices...........................................................................13
Section 108. Conflict with Trust Indenture Act.............................................................13
Section 109. Effect of Headings and Table of Contents......................................................13
Section 110. Successors and Assigns........................................................................13
Section 111. Separability Clause...........................................................................13
Section 112. Benefits of Indenture.........................................................................13
Section 113. Governing Law.................................................................................13
Section 114. Legal Holidays................................................................................14
Section 115. Schedules.....................................................................................14
Section 116. Counterparts..................................................................................14
ARTICLE TWO - FORM OF NOTES.....................................................................................14
Section 201. Forms Generally...............................................................................14
Section 202. Global Notes..................................................................................15
ii
<PAGE>
ARTICLE THREE - THE NOTES.......................................................................................15
Section 301. Title and Terms; Issuable in Series...........................................................15
Section 302. Currency; Denominations.......................................................................18
Section 303. Execution, Authentication, Delivery and Dating................................................18
Section 304. Temporary Notes...............................................................................21
Section 305. Registration, Transfer and Exchange...........................................................22
Section 306. Mutilated, Destroyed, Lost and Stolen Notes...................................................23
Section 307. Payment of Interest; Rights to Interest Preserved.............................................24
Section 308. Persons Deemed Owners.........................................................................26
Section 309. Cancellation..................................................................................26
Section 310. Authentication and Delivery of the Notes......................................................27
Section 311. Computation of Interest.......................................................................27
ARTICLE FOUR - SATISFACTION AND DISCHARGE.......................................................................27
Section 401. Satisfaction and Discharge of Indenture.......................................................27
Section 402. Application of Trust Money....................................................................28
ARTICLE FIVE - REMEDIES.........................................................................................29
Section 501. Events of Default.............................................................................29
Section 502. Acceleration of Maturity; Rescission and Annulment............................................31
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee...............................32
Section 504. Trustee May File Proofs of Claim..............................................................32
Section 505. Trustee May Enforce Claims without Possession of Notes........................................33
Section 506. Application of Money Collected................................................................33
Section 507. Limitations on Suits..........................................................................34
Section 508. Unconditional Right of Holders to Receive Principal and Interest..............................35
Section 509. Restoration of Rights and Remedies............................................................35
Section 510. Rights and Remedies Cumulative................................................................35
Section 511. Delay or Omission Not Waiver..................................................................35
Section 512. Control by Holders of Notes...................................................................36
Section 513. Waiver of Past Defaults.......................................................................36
Section 514. Waiver of Stay or Extension Laws..............................................................36
Section 515. Undertaking for Costs.........................................................................37
ARTICLE SIX - THE TRUSTEE.......................................................................................37
Section 601. Certain Duties and Responsibilities...........................................................37
Section 602. Notice of Defaults............................................................................38
Section 603. Certain Rights of Trustee.....................................................................39
Section 604. Not Responsible for Recitals or Issuance of Notes.............................................40
Section 605. May Hold Notes................................................................................40
Section 606. Money Held in Trust...........................................................................40
Section 607. Compensation and Reimbursement................................................................40
Section 608. Corporate Trustee Required; Eligibility.......................................................41
iii
<PAGE>
Section 609. Resignation and Removal; Appointment of Successor.............................................41
Section 610. Acceptance of Appointment by Successor........................................................43
Section 611. Merger, Conversion, Consolidation or Succession to Business...................................44
Section 612. Appointment of Authenticating Agent...........................................................44
ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
COMPANY.........................................................................................................47
Section 701. Company to Furnish Trustee Names and Addresses of Holders.....................................47
Section 702. Preservation of Information; Communications to Holders........................................47
Section 703. Reports by Trustee............................................................................47
Section 704. Reports by Company............................................................................48
ARTICLE EIGHT - CONSOLIDATION, MERGER AND SALES.................................................................49
Section 801. Company May Consolidate, Etc., Only on Certain Terms..........................................49
Section 802. Successor Person Substituted for Company......................................................50
ARTICLE NINE - SUPPLEMENTAL INDENTURES..........................................................................50
Section 901. Supplemental Indentures without Consent of Holders............................................50
Section 902. Supplemental Indentures with Consent of Holders...............................................51
Section 903. Execution of Supplemental Indentures..........................................................52
Section 904. Effect of Supplemental Indentures.............................................................52
Section 905. Reference in Notes to Supplemental Indentures.................................................52
Section 906. Record Date...................................................................................52
ARTICLE TEN - COVENANTS.........................................................................................53
Section 1001. Payment of Principal and Interest.............................................................53
Section 1002. Maintenance of Office or Agency...............................................................53
Section 1003. Money for Note Payments to Be Held in Trust...................................................53
Section 1004. Corporate Existence...........................................................................55
Section 1005. Maintenance of Properties.....................................................................55
Section 1006. Restrictions on Dividends and Other Payments..................................................56
Section 1007. Insurance.....................................................................................56
Section 1008. Payment of Taxes and Other Claims.............................................................56
Section 1009. Books and Records.............................................................................57
Section 1010. Statement by Officers as to Default...........................................................57
Section 1011. Waiver of Certain Covenants...................................................................57
EXHIBIT A - GLOBAL NOTE PROVISIONS.............................................................................A-1
</TABLE>
iv
<PAGE>
59
INDENTURE, dated as of April 24, 2002 (the "Indenture"), between THE
VALSPAR CORPORATION, a corporation duly organized and existing under the laws of
the State of Delaware (hereinafter called the "Company"), having executive
offices located at 1101 Third Street, Minneapolis, Minnesota 55415 and Bank One
Trust Company, N.A., a national banking association (hereinafter called the
"Trustee"), having its Corporate Trust Office at Bank One Plaza, Chicago,
Illinois 60670.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its Promissory Notes
(hereinafter called the "Notes"), to be issued in one or more series as herein
provided. All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder that are required to be part of this
Indenture and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders (as hereinafter defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders from time to time
of the Notes or of series thereof, as follows:
ARTICLE ONE - DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
Except as otherwise expressly provided in this Indenture or unless the
context otherwise requires, for all purposes of this Indenture:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in
the Trust Indenture Act (as hereinafter defined), either directly or by
reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles in the United States and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are
generally accepted in the United States at the date of such
computation;
1
<PAGE>
(4) the words "herein", "hereof", "hereto" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision; and
(5) the word "or" is always used inclusively (for example, the
phrase "A or B" means "A or B or both", not "either A or B but not
both").
Certain terms used principally in certain Articles hereof are defined
in those Articles.
"ACCELERATION EVENT" has the meaning specified in Section 502.
"ACQUIRED INDEBTEDNESS" means indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with the acquisition by the Company or a Subsidiary of the Company of assets
from such Person, and not incurred in connection with, or in anticipation of,
such Person becoming a Subsidiary of the Company or such acquisition.
"ACT", when used with respect to any Holder, has the meaning specified
in Section 104.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee
pursuant to Section 612 to act on behalf of the Trustee to authenticate Notes of
one or more series.
"AUTHORIZED NEWSPAPER" means a newspaper, in an official language of
the place of publication or in the English language, customarily published on
each day that is a Business Day in the place of publication, whether or not
published on days that are Legal Holidays in the place of publication, and of
general circulation in each place in connection with which the term is used or
in the financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any day that is a Business Day in the
place of publication.
"BOARD OF DIRECTORS" means the board of directors of the Company or any
committee of that board duly authorized to act generally or in any particular
respect for the Company hereunder.
"BOARD RESOLUTION" means a copy of one or more resolutions, certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, delivered to the Trustee. Where any provision hereof
refers to action to be taken pursuant to a Board Resolution
2
<PAGE>
(including establishment of any series of the Notes and the forms and terms
thereof), such action may be taken by any committee, officer or employee of the
Company authorized to take such action (generally or in any particular respect)
by a Board Resolution.
"BUSINESS DAY", with respect to any Place of Payment or other location,
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a Legal
Holiday in such Place of Payment or other location.
"CERTIFICATE OF AUTHENTICATION" means the certificate set forth in
Section 303 or Section 612.
"CERTIFICATED NOTE" means a Note which is not a Global Note.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934 or, if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person, and any other obligor upon the
Notes.
"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a written
request or order, as the case may be, signed in the name of the Company by the
Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President, a Vice President, the Chief Financial Officer, the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of
the Company, or by another officer of the Company duly authorized to sign by a
Board Resolution, and delivered to the Trustee.
"CONSOLIDATED" when used in conjunction with any other defined term
means the aggregate amount of the items included within the defined term of the
Company on a consolidated basis, eliminating inter-company items.
"CONSOLIDATED SUBSIDIARY" means a Subsidiary of the Company the
financial statements of which are included in the financial statements of the
Company and its Subsidiaries.
"CORPORATE TRUST OFFICE" means the corporate trust office of the
Trustee at which at any particular time this Indenture shall be administered,
which office at the date of original execution of this Indenture is located at
Bank One Plaza, Chicago, Illinois 60670.
"CORPORATION" includes corporations, associations, companies and
business trusts.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
3
<PAGE>
"DEFINITIVE NOTE" means a Note that is not a Temporary Note
contemplated by Section 304.
"DEPOSITARY" means, with respect to any Notes of any series issued in
the form of one or more Global Notes, the Person designated as Depositary by the
Company in or pursuant to this Indenture, which Person must be, to the extent
required by applicable law or regulation, a clearing agency registered under the
Securities Exchange Act of 1934, as amended, and any successor to such Person.
If at any time there is more than one such Person, "Depositary" shall mean, with
respect to any Notes of any series, the qualifying entity which has been
appointed with respect to such Notes of such series.
"DERIVATIVE OBLIGATIONS" means any obligations of the Company to make
payment pursuant to the terms of any securities contracts and foreign currency
exchange contracts, derivative instruments, such as swap agreements (including
interest rate and currency and foreign exchange rate swap agreements), cap
agreements, floor agreements, collar agreements, interest rate agreements,
foreign exchange agreements, options, commodity futures contracts and commodity
options contracts other than obligations on account of indebtedness for money
borrowed ranking pari passu with or subordinate to the Notes.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"GLOBAL NOTE" means a Note evidencing all or part of a series of Notes,
issued to the Depositary or its nominee for such series, registered in the name
of such Depositary or nominee and containing the language set forth in Exhibit
A.
"GOVERNMENT OBLIGATIONS" means direct obligations of the United States
of America, or any Person controlled or supervised by and acting as an agency or
instrumentality of such government, in each case where the payment or payments
thereunder are unconditionally guaranteed as a full faith and credit obligation
by such government and which are not callable or redeemable at the option of the
issuer or issuers thereof, and shall also include a depository receipt issued by
a bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of or other amount
with respect to any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of or other amount with respect to the Government
Obligation evidenced by such depository receipt.
"HOLDER", when used with respect to the Notes, means the Person in
whose name a Note is registered in the Note Register.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of any particular series of Notes established as
contemplated by Section 301; provided, however, that, if at any time more
4
<PAGE>
than one Person is acting as Trustee under this instrument due to the
appointment of one or more separate Trustees for any one or more separate series
of Notes pursuant to Section 610, the term "Indenture" shall mean, with respect
to such series of Notes for which any such Person is Trustee, this instrument as
originally executed or as it may from time to time be supplemented or amended by
one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof and shall include the terms of any particular
series of Notes for which such Person is Trustee established as contemplated by
Section 301, exclusive, however, of any provisions or terms which relate solely
to other series of Notes for which such Person is not Trustee, regardless of
when such terms or provisions were adopted, and exclusive of any provisions or
terms adopted by means of one or more indentures supplemental hereto executed
and delivered after such Person had become such Trustee but to which such
person, as such Trustee, was not a party.
"INDEPENDENT PUBLIC ACCOUNTANTS" means a nationally recognized firm of
accountants that, with respect to the Company, are independent public
accountants within the meaning of the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder, who may be
the independent public accountants regularly retained by the Company or who may
be other independent public accountants. Such accountants or firm shall be
entitled to rely upon any Opinion of Counsel as to the interpretation of any
legal matters relating to the Indenture or certificates required to be provided
hereunder.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Notes.
"INITIAL INTEREST ACCRUAL DATE" as to any Note means the date from
which interest shall begin to accrue in connection with the original issuance of
such Note, which shall be the date as of which such Note originally issued by
the Company to the initial purchaser thereof shall be dated, and which shall be
the date upon which it was originally sold to such initial purchaser as
designated by the Company Order requesting authentication and delivery thereof.
"ISSUE DATE" means the date on which the Notes are originally issued in
accordance with the terms of this Indenture.
"LEGAL HOLIDAY" with respect to any Place of Payment or other location,
means a Saturday, a Sunday or a day on which banking institutions or trust
companies in such Place of Payment or other location are not authorized or
obligated to be open.
"MATURITY" means the date on which the principal of the Notes or an
installment of principal becomes due and payable as provided in this Indenture,
whether at the Stated Maturity or by declaration of acceleration.
"MONEY" with respect to any payment, deposit or other transfer pursuant
to or contemplated by the terms hereof, means United States dollars or other
equivalent unit of legal tender for payment of public or private debts in the
United States of America.
5
<PAGE>
"NOTE" or "NOTES" means any note or notes of any series, as the case
may be, authenticated and delivered under this Indenture; provided, however,
that if at any time there is more than one Person acting as Trustee hereunder,
the term "Notes" as to which such Person is Trustee shall mean Notes
authenticated and delivered hereunder, exclusive, however, of Notes of any
series as to which such Person is not Trustee.
"NOTE REGISTER" AND "NOTE REGISTRAR" have the respective meanings
specified in Section 305.
"OFFICE OR AGENCY" means an office or agency of the Company maintained
or designated in a Place of Payment for the Notes pursuant to Section 1002 or
any other office or agency of the Company maintained or designated for the Notes
pursuant to Section 1002 or, to the extent designated or required by Section
1002 in lieu of such office or agency, the Corporate Trust Office of the
Trustee.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, that complies with the
requirements of Section 314(e) of the Trust Indenture Act and is delivered to
the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee, that complies with the requirements of Section 314
(e) of the Trust Indenture Act.
"ORIGINAL ISSUE DISCOUNT NOTE" means any Note which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 502.
"OUTSTANDING", when used with respect to any Notes, means, as of the
date of determination, all Notes of any series theretofore authenticated and
delivered under this Indenture, except:
(1) any Note theretofore canceled by the Trustee or the Note
Registrar or delivered to the Trustee or the Note Registrar for
cancellation;
(2) any Note or portion thereof for whose payment at the
Maturity thereof Money in the necessary amount has been theretofore
deposited pursuant hereto with the Trustee or any Paying Agent (other
than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of the Notes;
(3) any Note with respect to which the Company has effected
defeasance pursuant to Clause (1)(b) of Section 401 hereof; and
6
<PAGE>
(4) any Note which has been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, unless there shall have been
presented to the Trustee proof satisfactory to it that such Note is
held by a bona fide purchaser in whose hands such Note is a valid
obligation of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes of any series have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes of
such series owned by the Company or any other obligor upon such Notes or any
Affiliate of the Company or such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
protected in making any such determination or relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be so disregarded. Notes so owned which
shall have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee (a) the pledgee's right
so to act with respect to such Notes and (b) that the pledgee is not the Company
or any other obligor upon the Notes or any Affiliate of the Company or such
other obligor.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of or interest on any Note on behalf of the Company.
"PERIODIC OFFERING" means an offering of Notes of a series from time to
time the specific terms of which Notes, including without limitation the rate or
rates of interest (or formula for determining the rate or rates of interest), if
any, thereon, and the Stated Maturity or Maturities thereof, are to be
determined by the Company or its agents upon the issuance of such Notes.
"PERSON" means any individual, Corporation, partnership, joint venture,
joint stock company, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PLACE OF PAYMENT" has the meaning set forth in Section 301.
"PREDECESSOR NOTE" of a Note means every previous Note evidencing all
or a portion of the same debt as that evidenced by such particular Note; and,
for the purposes of this definition, any Note authenticated and delivered under
Section 306 in exchange for or in lieu of a lost, destroyed, mutilated or stolen
Note shall be deemed to evidence the same debt as the lost, destroyed, mutilated
or stolen Note.
"REGULAR RECORD DATE" for the interest payable on any Note of any
series on any Interest Payment Date therefor means the date specified in the
Note as the "Regular Record Date".
"RESPONSIBLE OFFICER" means any officer of the Trustee assigned by the
Trustee to administer corporate trust matters and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
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"RESTRICTED PAYMENT" has the meaning specified in Section 1006.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR INDEBTEDNESS" means, the principal of, premium, if any, and
interest on (1) (a) all indebtedness of the Company for money borrowed
(including indebtedness of others guaranteed by the Company) other than the
Notes, whether outstanding on the date hereof or thereafter created, assumed or
incurred, and (b) any amendments, renewals, extensions, modifications and
refundings of any such indebtedness, unless in the case of either (a) or (b) in
the instrument creating or evidencing any such indebtedness or pursuant to which
it is outstanding it is provided that such indebtedness is not Senior
Indebtedness, and (2) Derivative Obligations. For the purposes of this
definition, "indebtedness for money borrowed" is defined as (a) any obligation
of the Company for the repayment of borrowed money, whether or not evidenced by
bonds, debentures, notes or other written instruments, (b) any deferred payment
obligation of the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (c) any obligation of the
Company for the payment of rent or other amounts under a lease of property or
assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Company under generally accepted
accounting principles; PROVIDED, HOWEVER, that the foregoing shall not include
any obligation that constitutes a trade payable or accrued liability arising in
the ordinary course of business.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on any
Note means a date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY" with respect to any Note or any installment of
principal thereof or interest thereon means the date established by this
Indenture or any supplemental indenture as the fixed date on which the principal
of such Note or such installment of principal or interest is due and payable.
"SUBSIDIARY" means any Corporation of which at the time of
determination the Company or one or more Subsidiaries owns or controls directly
or indirectly more than 50% of the shares of Voting Stock.
"TRANSFER RESTRICTIONS" has the meaning set forth in Section 305(b).
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended, and any reference herein to the Trust Indenture Act or a particular
provision thereof shall mean such Act or provision, as the case may be, as
amended or replaced from time to time or as supplemented from time to time by
rules or regulations adopted by the Commission under or in furtherance of the
purposes of such Act or provision, as the case may be.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean each Person who is then a Trustee hereunder, and if at any
time there is more than one such Person, "Trustee" as used with respect to the
Notes of any series shall mean the Trustee with respect to Notes of that series.
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"UNITED STATES" except as otherwise provided herein, means the United
States of America (including the states thereof and the District of Columbia),
its territories and possessions and other areas subject to its jurisdiction.
"VICE PRESIDENT" when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".
"VOTING STOCK" means stock of a Corporation of the class or classes
having general voting power under ordinary circumstances to elect at least a
majority of the board of directors, managers or trustees of such Corporation,
PROVIDED that, for the purposes hereof, stock which carries only the right to
vote conditionally on the happening of an event shall not be considered Voting
Stock whether or not such event shall have happened.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents or any of them is specifically required by any provision of
this Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such condition or covenant and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
such individual has made such examination or investigation as is
necessary to enable such individual to express an informed opinion as
to whether or not such condition or covenant has been complied with;
and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate of counsel or Opinion of Counsel or
representation of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Note, they may, but need not, be
consolidated and form one instrument.
SECTION 104. ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in
person or by an agent duly appointed in writing. Except as herein
otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where
it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent, or of the holding by any Person
of a Note, shall be sufficient for any purpose of this Indenture and
(subject to Section 315 of the Trust Indenture Act) conclusive in favor
of the Trustee and the Company and any agent of the Trustee or the
Company, if made in the manner provided in this Section.
Without limiting the generality of this Section, unless
otherwise provided in or pursuant to this Indenture, a Holder,
including a Depositary that is a Holder of a Global Note, may make,
give or take, by a proxy, or proxies, duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or
other action provided
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in or pursuant to this Indenture to be made, given or taken by Holders,
and a Depositary that is a Holder of a Global Note may provide its
proxy or proxies to the beneficial owners of interests in any such
Global Note through such Depositary's standing instructions and
customary practices.
The Trustee shall fix a record date for the purpose of
determining the Persons who are beneficial owners of interest in any
Global Note held by a Depositary entitled under the procedures of such
Depositary to make, give or take, by a proxy or proxies duly appointed
in writing, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this
Indenture to be made, given or taken by Holders. If such a record date
is fixed, the Holders on such record date or their duly appointed proxy
or proxies, and only such Persons, shall be entitled to make, give or
take such request, demand, authorization, direction, notice, consent,
waiver or other action, whether or not such Holders remain Holders
after such record date. No such request, demand, authorization,
direction, notice, consent, waiver or other action shall be valid or
effective if made, given or taken more than 90 days after such record
date.
(2) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which
the Trustee deems sufficient and in accordance with such reasonable
rules as the Trustee may determine; and the Trustee may in any instance
require further proof with respect to any of the matters referred to in
this Section.
(3) The ownership, principal amount and serial numbers of
Notes held by any Person, and the date of the commencement and the date
of the termination of holding the same, shall be proved by the Note
Register.
(4) If the Company shall solicit from the Holders of any Notes
of any series any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company may at its option (but is not
obligated to), by Board Resolution, fix in advance a record date for
the determination of Holders of Notes of such series entitled to give
such request, demand, authorization, direction, notice, consent, waiver
or other Act. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of Notes
of such series of record at the close of business on such record date
shall be deemed to be Holders for the purpose of determining whether
Holders of the requisite proportion of Outstanding Notes of such series
have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes of such series shall be computed as
of such record date; PROVIDED that no such authorization, agreement or
consent by the Holders of Notes of any series on such record date shall
be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record
date.
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(5) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind
every future Holder of the same Note and the Holder of every Note
issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done or suffered to
be done by the Trustee, any Note Registrar, any Paying Agent or the
Company in reliance thereon, whether or not notation of such action is
made upon such Note.
SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder or the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or
(2) the Company by the Trustee or any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, or sent by facsimile and U.S. mail, first-class postage
prepaid, to the Company addressed to the attention of its Chief
Financial Officer at the address of its principal office specified in
the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS OF NOTES; WAIVER.
Except as otherwise expressly provided in this Indenture, where this
Indenture provides for notice to Holders of Notes of any series of any event,
such notice shall be sufficiently given to Holders of Notes of such series if in
writing and mailed, first-class postage prepaid, to each Holder of a Note of a
series affected by such event, at such Holder's address as it appears in the
Note Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice.
In any case where notice to Holders of Notes of any series is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Note of a series shall affect the
sufficiency of such notice with respect to other Holders of Notes of such
series. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given or provided. In case by reason of
the suspension of regular mail service or by reason of any other cause it shall
be impracticable to give such notice by mail, then such notification as shall be
made with the approval of the Trustee shall constitute a sufficient notification
for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders of Notes shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
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SECTION 107. LANGUAGE OF NOTICES.
Any request, demand, authorization, direction, notice, consent,
election or waiver required or permitted under this Indenture shall be in the
English language.
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act, such required provision
shall control.
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 110. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 111. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes of any series
shall be invalid, illegal or unenforceable, either wholly or partially, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby, and such provisions shall be given
effect to the fullest extent permitted by law.
SECTION 112. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Note Registrar, any
Paying Agent, any Authenticating Agent and their respective successors hereunder
and the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 113. GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
or instruments entered into and, in each case, performed in said state.
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SECTION 114. LEGAL HOLIDAYS.
In any case where any Interest Payment Date or Stated Maturity of any
Note shall be a Legal Holiday at any Place of Payment, then (unless otherwise
specified pursuant to this Indenture) payment need not be made at such Place of
Payment on such date, but may be made on the next succeeding day that is a
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date or at the Stated Maturity, and no interest shall
accrue on the amount payable on such date or at such time for the period from
and after such Interest Payment Date or Stated Maturity, as the case may be.
SECTION 115. SCHEDULES.
Any Schedules attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
SECTION 116. COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
ARTICLE TWO - FORM OF NOTES
SECTION 201. FORMS GENERALLY.
Each Note of any series issued pursuant to this Indenture, including
Global Notes, shall be in the form established by or pursuant to a Board
resolution or in one or more indentures supplemental hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto and
may have such letters, numbers or other marks of identification and such legends
or endorsements placed thereon as may be required to comply with any law or with
any rule or regulation of any stock exchange or national market system or as
may, consistently herewith, be determined by the officers executing such Note as
evidenced by their execution of such Note. The Notes shall be issuable without
coupons in fully registered form only. Any portion of the text of any Note may
be set forth on the reverse thereof, with an appropriate reference thereto on
the face of the Note.
The Notes shall be printed, lithographed or engraved or produced by any
combination of these methods on a steel engraved border or steel engraved
borders or may be produced in any other manner, all as determined by the
officers of the Company executing such Notes, as evidenced by their execution of
such Notes.
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SECTION 202. GLOBAL NOTES.
Notes issued hereunder may be issued as one or more Global Notes.
Ownership of beneficial interests in a Global Note will be limited to persons
who have accounts with the Depositary ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of the ownership interests will be
effected only through, records maintained by the Depositary or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants). Any endorsement of any
Note in global form to reflect the amount, or any increase or decrease in the
amount, or changes in the rights of Holders, of Outstanding Notes represented
thereby shall be made in such manner and by such Person or Persons as shall be
specified therein or in the Company Order to be delivered pursuant to Section
303 or 304 with respect thereto. Subject to the provisions of Section 303 and,
if applicable, Section 304, the Trustee shall deliver and redeliver any Global
Note in permanent global form in the manner and upon instructions given by the
Person or Persons specified therein or in the applicable Company Order. If a
Company Order pursuant to Section 303 or 304 has been, or simultaneously is,
delivered, any instructions by the Company with respect to a Global Note shall
be in writing but need not be accompanied by or contained in an Officers'
Certificate and need not be accompanied by an Opinion of Counsel.
ARTICLE THREE - THE NOTES
SECTION 301. TITLE AND TERMS; ISSUABLE IN SERIES.
The Notes may be issued in one or more series. There shall be
established, without the approval of any Holders or the Trustee, by or pursuant
to authority granted by one or more Board Resolutions, and, subject to Section
303, there shall be set forth in an Officers' Certificate, or established in one
or more indentures supplemental hereto, prior to the initial issuance of Notes
of any series, all or any of the following, as applicable:
(1) the title of the Notes of the series (which shall
distinguish the Notes of the series from Notes of any other series);
(2) any limit upon the aggregate principal amount of the Notes
of the series which may be authenticated and delivered hereunder
(except for Notes authenticated and delivered upon registration of
transfer of, or in lieu of, other Notes of the series pursuant to
Sections 304, 305, or 306 and except for any Notes which, pursuant to
Section 303, are deemed never to have been authenticated and delivered
hereunder) and the absence of such limitation shall mean that the
Company may issue from time to time additional Notes of such series
without limitation as to aggregate principal amount;
(3) the Person to whom any interest on a Note of the series
shall be payable, if other than the Person in whose name that Note (or
one or more Predecessor Notes) is registered at the close of business
on the Regular Record Date for such interest;
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(4) the date or dates, or the method by which such date
or dates are determined or extended, on which the principal or
installments of principal and premium, if any, of the Notes of the
series is or are payable;
(5) the rate or rates (which may be fixed or variable)
at which the Notes of the series shall bear interest, if any, or the
method by which such rate or rates shall be determined, the date or
dates from which such interest shall accrue, the Interest Payment Dates
on which such interest shall be payable, the Regular Record Date for
the interest payable on any Interest Payment Date and the
circumstances, if any in which the Company may defer interest payments
and the basis upon which interest shall be calculated if other than
that of a 360-day year of twelve 30-day months;
(6) the place or places, if any, where the principal of
(and premium, if any) and interest on Notes of the series shall be
payable, any Notes of the series may be surrendered for registration of
transfer or exchange and notices and demands to or upon the Company
with respect to the Notes of the series and this Indenture may be
served, other than or in addition to the Corporate Trust Office of the
Trustee;
(7) whether the Notes of the series will be convertible
into shares of capital stock and/or exchangeable for other securities,
and if so, the terms and conditions upon which such Notes will be so
convertible or exchangeable, and any deletions from or modifications or
additions hereto to permit or to facilitate the issuance of such
convertible or exchangeable Notes or the administration thereof;
(8) the identity of each Note Registrar and Paying
Agent, if other than or in addition to the Trustee;
(9) if the amount of principal of or any premium or
interest on any Notes of the series may be determined by reference to
an index or pursuant to a formula, the manner in which such amounts
shall be determined;
(10) the applicability of, and any addition to or change
in, the definitions currently set forth herein;
(11) if other than denominations of $1,000 or any amount
in excess thereof which is an integral multiple of $1,000, the
denominations in which Notes of the series shall be issuable;
(12) any other event or events of default applicable
with respect to Notes of the series in addition to or in lieu of those
provided in Section 501 or any event or events of default provided in
Section 501 which will not be applicable to Notes of the series, and
any change in the right of the Trustee or the Holders to declare the
principal of or any premium or interest on such Notes due and payable;
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(13) whether the Notes of the series will be Original
Issue Discount Notes and, if so, the portion of the principal amount of
Notes of the series which shall be payable upon declaration of
acceleration of the Maturity thereof pursuant to Section 502;
(14) whether the Notes of the series shall be issued in
whole or in part in the form of one or more Global Notes and, if so,
(a) the Depositary with respect to such Global Note or Notes and (b)
the circumstances under which any such Global Note may be exchanged for
Notes registered in the name of, and any transfer of such Global Note
may be registered to, a Person other than such Depositary or its
nominee, if other than set forth in Section 305;
(15) if applicable, the period or periods within which
or the date or dates on which, the price or prices at which and the
terms and conditions upon which Notes of the series may be redeemed, in
whole or in part, at the option of the Company or the Holder;
(16) any other covenant or warranty included for the
benefit of the Notes of the series in addition to (and not inconsistent
with) those set forth herein for the benefit of Notes of all series, or
any other covenant or warranty included for the benefit of Notes of the
series in lieu of any covenant or warranty set forth herein for the
benefit of Notes of all series, or any provision that any covenant or
warranty set forth herein for the benefit of Notes of all series shall
not be for the benefit of Notes of such series, or any combination of
such covenants, warranties or provisions and the applicability, if any,
of the provisions of Section 1012 to such covenants and warranties;
(17) whether or not the Notes of the series will be
subordinated in right of payment to Senior Indebtedness and the terms
of any such subordination;
(18) any other terms of the series (which terms shall
not be inconsistent with the provisions hereof, except as permitted by
Section 901(5));
(19) the obligation, if any, of the Issuer to purchase
or repay the Notes pursuant to any sinking fund or analogous provisions
or at the option of a Holder thereof and the price or prices at which
and the period or periods within which and the terms and conditions
upon which the Notes of the series shall be redeemed, purchased or
repaid, in whole or in part, pursuant to such obligation;
(20) the price at which the Notes shall be issued; and
(21) any special tax implications of the Notes.
All Notes of any one series (other than Notes offered in a Periodic
Offering) shall be substantially identical except as to denomination and except
as may otherwise be provided by or pursuant to the Board Resolution referred to
above and, subject to Section 303, set forth, or determined in the manner
provided, in the Officers' Certificate referred to above or in any such
indenture supplemental hereto. All Notes of any one series need not be issued at
the same time. Unless otherwise provided, a series may be reopened without the
consent of the Holders of Notes of such series, for issuance of additional Notes
of such series.
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If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
With respect to Notes of a series offered in a Periodic Offering, such
Board Resolution and Officers' Certificate or supplemental indenture may provide
general terms or parameters for Notes of such series and provide either that the
specific terms of particular Notes of such series shall be specified in a
Company Order or that such terms shall be determined by the Company or its
agents in accordance with other procedures specified in a Company Order as
contemplated by Section 303.
The principal of and interest on the Notes of any series shall be
payable at the Office or Agency of the Company ("PLACE OF PAYMENT") maintained
for such purposes pursuant to Section 1002; PROVIDED, HOWEVER, that, at the
option of the Company, payment of interest may be made (subject to collection)
(i) by check mailed to the address of the Person entitled thereto as such
address shall appear on the Note Register or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the Note Register.
SECTION 302. CURRENCY; DENOMINATIONS.
The principal of and interest on the Notes of each series shall be
payable in United States dollars or other equivalent unit of legal tender for
payment of public or private debts in the United States of America. In the
absence of any specification with respect to the Notes of any series, Notes
shall be issuable in fully registered form only without coupons in denominations
of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Notes shall be executed on behalf of the Company by its Chairman of the
Board, one of its Vice Chairmen of the Board, its Chief Executive Officer, its
President, its Chief Financial Officer, its Treasurer or one of its Vice
Presidents under its corporate seal reproduced thereon and attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery
hereof, the Company may deliver Notes of any series executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, or, in the case of Notes offered in a
Periodic Offering, from time to time in accordance with such other procedures
(including, without limitation, the receipt by the Trustee of electronic
instructions from the Company or its duly authorized agents, promptly confirmed
in writing by the Company)
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acceptable to the Trustee as may be specified from time to time by a Company
Order for establishing the specific terms of particular Notes being so offered,
and the Trustee in accordance with the Company Order shall authenticate and
deliver such Notes. If the form or forms or terms of the Notes of the series
have been established by or pursuant to one or more Board Resolutions as
permitted by Section 301, in authenticating such Notes and accepting the
additional responsibilities hereunder in relation to such Notes, the Trustee
shall be entitled to receive, and (subject to Section 601) shall be fully
protected in relying upon
(a) an Opinion of Counsel stating:
(1) that the form or forms of such Notes have been
established in conformity with the provisions thereof,
(2) that the terms of such Notes have been established in
conformity with the provisions thereof,
(3) that authentication and delivery of such Notes and
the execution and delivery of the supplemental indenture, if any, by
the Trustee is authorized or permitted by the terms hereof,
(4) that the Company has the corporate power to issue,
and has duly authorized, such Notes;
(5) that such Notes, when authenticated and delivered
by the Trustee and issued by the Company in the manner and subject to
any conditions specified in such Opinion of Counsel, will constitute
valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer and other laws of general applicability relating
to or affecting the enforcement of creditors' rights and to general
equity principles; and
(6) that the issuance of such Notes will not contravene
the certificate of incorporation or bylaws of the Company or result in
any violation of any of the terms or provisions of any law or
regulation or of any indenture, mortgage or other agreement known to
such Counsel by which the Company or its assets is bound, the violation
of which would have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(b) an executed supplemental indenture, if any;
(c) a copy of the Board Resolution; and
(d) an Officers' Certificate;
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provided, however, that, with respect to Notes of a series offered in a Periodic
Offering, the Trustee shall be entitled to receive such Opinion of Counsel in
connection only with the first authentication of each form of Notes of such
series and that the opinions described in clauses (a)(2) and (a)(5) above may
state, respectively, that
(1) if the terms of such Notes are to be established
pursuant to a Company Order or pursuant to such procedures as may be
specified from time to time by a Company Order, all as contemplated by
a Board Resolution or action taken pursuant thereto, such terms will
have been duly authorized by the Company and established in conformity
with the provisions hereof; and
(2) that such Notes, when executed by the Company,
completed, authenticated and delivered by the Trustee in accordance
herewith, and issued and delivered by the Company and paid for, all in
accordance with any agreement of the Company relating to the offering,
issuance and sale of such Notes, will be duly issued hereunder and will
constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting generally the enforcement of creditors' rights and to general
principles of equity.
With respect to Notes of a series offered in a Periodic Offering, the
Trustee may rely conclusively, as to the authorization by the Company of any of
such Notes, the form or forms and terms thereof and the legality, validity,
binding effect and enforceability thereof, upon the Opinion of Counsel, Company
Order and other documents delivered pursuant to Section 301 and this Section, as
applicable, in connection with the first authentication of a form of Notes of
such series and it shall not be necessary for the Company to deliver such
Opinion of Counsel and other documents (except as may be required by the
specified other procedures, if any, referred to above) at or prior to the time
of authentication of each Note of such series unless and until the Trustee
receives actual notice that such Opinion of Counsel or other documents have been
superseded or revoked, and may assume compliance with any conditions specified
in such Opinion of Counsel (other than any conditions to be performed by the
Trustee). If such form or forms or terms have been so established, the Trustee
shall not be required to authenticate such Notes if the issue of such Notes
pursuant hereto will affect the Trustee's own rights, duties or immunities under
the Notes and this Indenture.
The Company may establish by Company Order that the Notes of any series
to be issued hereunder shall be in the form of one or more Global Notes. The
Company shall execute and the Trustee shall, in accordance with this Section and
the Company Order with respect to such Notes, authenticate and deliver one or
more Global Notes in permanent form that (i) shall represent and shall be
denominated in an amount equal to the aggregate principal amount of the
Outstanding Notes to be represented by such Global Note or Notes, (ii) shall be
registered in the name of the Depositary for such Global Note or Notes or the
nominee of such Depositary, (iii) shall be delivered by the Trustee to such
Depositary or pursuant to such Depositary's instruction and (iv) shall bear a
legend substantially to the following effect: "Unless and until it is exchanged
in whole or in part for Notes in certificated form, this Note may not be
transferred except as a whole
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by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary" or to such other effect as the Depositary and the Trustee
may agree.
Each Note of a series shall be dated the date of its authentication.
No Note of any series shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there appears on
such Note a Certificate of Authentication substantially in the form provided
below executed by or on behalf of the Trustee by the manual signature of one of
its authorized officers, or a Certificate of Authentication in the form provided
in Section 612 executed by an Authenticating Agent:
This is one of the Debt Securities of the series designated therein referred to
in the Indenture.
Bank One Trust Company, N.A., as Trustee
By: ____________________________________
Authorized Signature
Authentication Date: ____________________
Such certificate upon any Note of any series shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of Definitive Notes of any series, the Company
may execute and deliver to the Trustee and, upon Company Order, the Trustee
shall authenticate and deliver, in the manner provided in Section 303, temporary
Notes in lieu thereof which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the Definitive Notes of any series in lieu of which they are issued, in
registered form and with such appropriate insertions, omissions, substitutions
and other variations as the officers of the Company executing such Notes may
determine, as conclusively evidenced by their execution of such Notes.
Except in the case of temporary Global Notes, which shall be exchanged
in accordance with the provisions thereof, if temporary Notes of any series are
issued, the Company shall cause Definitive Notes to be prepared without
unreasonable delay. After the preparation of Definitive Notes, such temporary
Notes shall be exchangeable for such Definitive Notes upon surrender of such
temporary Notes at an Office or Agency for such Notes, without charge to any
Holder thereof. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of Definitive Notes of authorized
denominations. Unless otherwise provided in or pursuant to this Indenture with
respect to a temporary Global Note, until so exchanged the temporary Notes shall
in all respects be entitled to the same benefits under this Indenture as
Definitive Notes.
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SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.
The Company shall cause to be kept a register (herein sometimes
referred to as the "NOTE REGISTER") at an Office or Agency maintained pursuant
to Section 1002 in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Notes of any
series and of transfers of the Notes. The Trustee is hereby initially appointed
as Note Registrar for the Notes. In the event that the Trustee shall cease to be
Note Registrar it shall have the right to examine the Note Register at all
reasonable times.
Upon surrender for registration of transfer of any Note of any series
at the Office or Agency of the Company, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes, denominated as authorized in this
Indenture, of a like aggregate principal amount bearing a number not
contemporaneously outstanding and containing identical terms and provisions.
At the option of the Holder, Notes of any series (except a Global Note
representing all of the Outstanding Notes) may be exchanged for other Notes, in
any authorized denominations, and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such Office or Agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
Whenever any Notes are surrendered for exchange as contemplated by the
immediately preceding two paragraphs, the Company shall execute, and the Trustee
shall authenticate and deliver, the Notes which the Holder making the exchange
is entitled to receive.
No beneficial owner of an interest in a Global Note will be able to
transfer that interest except in accordance with the applicable procedures of
the Depositary (in addition to any other procedures specified herein).
Notwithstanding the foregoing, except as otherwise provided in or
pursuant to this Indenture, no Global Note of any series shall be exchangeable
in whole or in part for Certificated Notes unless (i) the Depositary is at any
time unwilling, unable or ineligible to continue as Depositary and a successor
Depositary is not appointed by the Company within 90 days of the date the
Company is so informed in writing, (ii) the Company executes and delivers to the
Trustee a Company Order to the effect that such Global Note shall be so
exchangeable, or (iii) an Event of Default has occurred and is continuing with
respect to the Global Note of any series which entitles the Holders to
accelerate the maturity thereof. If the beneficial owners of interests in a
Global Note of any series are entitled to exchange such interests for
Certificated Notes of such series of like tenor and principal amount of any
authorized form and denomination as contemplated by Section 303, then without
unnecessary delay but in any event not later than the earliest date on which
such interests may be so exchanged, the Company shall deliver to the Trustee
Certificated Notes in such form and denominations as are required by or pursuant
to this Indenture, containing identical terms and in aggregate principal amount
equal to the principal amount of such Global Note, executed by the Company. On
or after the earliest date on which such interests may be so exchanged, such
Global Note shall be surrendered by the Depositary in
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accordance with instructions given to the Trustee and the Depositary (which
instructions shall be in writing but need not be contained in or accompanied by
an Officers' Certificate or be accompanied by an Opinion of Counsel) as shall be
specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose. Promptly following any such exchange in part,
such Global Note shall be returned by the Trustee to such Depositary in
accordance with the instructions of the Company referred to above. If a Note is
issued in exchange for any portion of a Global Note after the close of business
at the Office or Agency for such Note where such exchange occurs on or after (i)
any Regular Record Date for such Note and before the opening of business at such
Office or Agency on the next Interest Payment Date, or (ii) any Special Record
Date for such Note and before the opening of business at such Office or Agency
on the related proposed date for payment of interest or Defaulted Interest, as
the case may be, interest shall not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of such Note, but
shall be payable on such Interest Payment Date or proposed date for payment, as
the case may be, only to the Person to whom interest in respect of such portion
of such Global Note shall be payable in accordance with the provisions of this
Indenture.
Notwithstanding any other provision of this Indenture, a Global Note of
any series may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary.
All Notes of any series issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company evidencing the
same debt and entitling the Holders thereof to the same benefits under this
Indenture as the Notes surrendered upon such registration of transfer or
exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Note Registrar for such
Note) be duly endorsed by, or be accompanied by a written instrument of transfer
in form satisfactory to the Company and the Note Registrar duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304 or 905 not involving any transfer.
As used in this Section 305, the term "transfer" encompasses any sale,
pledge, transfer or other disposition of any Notes referred to herein.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note, including a Global Note, is surrendered to the
Trustee, subject to the provisions of this Section, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new Note
containing identical terms and of like principal amount and bearing a number not
contemporaneously outstanding.
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If there be delivered to the Company and to the Trustee (1) evidence to
their satisfaction of the destruction, loss or theft of any Note, including a
Global Note if the destroyed, lost or stolen Note was a Global Note, and (2)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and, upon the Company's request the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
destroyed, lost or stolen Note, a new Note of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing provisions of this Section, in case any
mutilated, destroyed, lost or stolen Note of any series has become or is about
to become due and payable for any reason, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Note shall constitute an additional original
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes of that series duly issued hereunder.
The provisions of this Section, as amended or supplemented pursuant to
this Indenture, shall be exclusive and shall preclude (to the extent lawful) all
other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes.
SECTION 307. PAYMENT OF INTEREST; RIGHTS TO INTEREST PRESERVED.
Unless otherwise provided as contemplated by Section 301, any interest
on any Note of any series which shall be payable and is punctually paid or duly
provided for on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered as of the close
of business on the Regular Record Date for such interest.
Any interest on any Note of any series which shall be payable, but
shall not be punctually paid or duly provided for, on any Interest Payment Date
for such Note (herein called "DEFAULTED INTEREST") shall forthwith cease to be
payable to the Holder thereof on the relevant Regular Record Date by virtue of
having been a Holder on such date; and such Defaulted Interest shall be paid by
the Company, at its election in each case, as provided in Clause (1) or (2)
below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Person in whose name such Note of such series
(or a Predecessor Note thereof) shall be registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on
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such Note and the date of the proposed payment, and at the same time
the Company shall deposit with the Trustee an amount of Money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit on or prior to the date of the proposed payment. Such
Money when so deposited shall be held in trust for the benefit of the
Person entitled to such Defaulted Interest. Thereupon, the Trustee
shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to the Holder of such Note (or a Predecessor Note thereof) at such
Holder's address as it appears in the Note Register not less than 10
days prior to such Special Record Date. In addition to the mailing, the
Trustee may, in its discretion, in the name and at the expense of the
Company cause a similar notice to be published at least once in an
Authorized Newspaper of general circulation in each Place of Payment,
but such publication shall not be a condition precedent to the
establishment of such Special Record Date and the failure of a Holder
to observe such published notice shall not entitle such Holder to
additional benefits or interest with respect to such Holder's Notes.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Person in whose name such Note
of such series (or a Predecessor Note thereof) shall be registered at
the close of business on such Special Record Date and shall no longer
be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange or national market system on
which the Notes may be listed, and upon such notice as may be required
by such exchange or national market system, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause, such payment shall be deemed practicable by the Trustee.
At the option of the Company, interest on any Note may be paid (i) by
mailing a check to the address of the Person entitled thereto as such address
shall appear in the Note Register, or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the Note Register.
Subject to the foregoing provisions of this Section and Section 305,
each Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
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SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Note for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Note is registered in the Note Register
as the owner of such Note for the purpose of receiving payment of principal of
and (subject to Sections 305 and 307) interest on such Note and for all other
purposes whatsoever, whether or not any payment with respect to such Note shall
be overdue, and neither the Company, nor the Trustee or any agent of the Company
or the Trustee shall be affected by notice to the contrary.
Payments on Global Notes will be made to the Depositary, or its
nominee, as the registered owner thereof. Neither the Company, the Trustee nor
any paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
No holder of any beneficial interest in any Global Note held on its
behalf by a Depositary shall have any rights under this Indenture with respect
to such Global Note or any Note represented thereby, and such Depositary may be
treated by the Company, the Trustee, and any agent of the Company or the Trustee
as the owner of such Global Note or any Note represented thereby for all
purposes whatsoever. Notwithstanding the foregoing, with respect to any Global
Note, nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by a Depositary Holder of such Global Note, or
impair, as between a Depositary and the owners of beneficial interests in such
Global Note, the operation of customary practices governing the exercise of the
rights of the Depositary (or its nominees) as Holder of such Global Note. None
of the Company, the Trustee, any Paying Agent or the Note Registrar will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
SECTION 309. CANCELLATION.
All Notes surrendered for payment, registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Notes, as well as Notes surrendered directly to the
Trustee for any such purpose, shall be canceled promptly by the Trustee. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be canceled
promptly by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes held by the Trustee shall be
destroyed by the Trustee, unless by a Company Order the Company directs their
return to it.
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SECTION 310. AUTHENTICATION AND DELIVERY OF THE NOTES.
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Notes may be executed by the Company and delivered to
the Trustee for authentication, and shall thereupon be authenticated and
delivered by the Trustee upon Company Order, Board Resolution, or indentures
supplemental hereto.
SECTION 311. COMPUTATION OF INTEREST.
Except as otherwise specified pursuant to Section 301 for the Notes of
any series, interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months. Interest shall be payable to and excluding any
Interest Payment Date and interest shall be payable to and excluding the
Maturity.
ARTICLE FOUR - SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
Upon the direction of the Company by a Company Order, this Indenture
shall cease to be of further effect with respect to any series of Notes and the
Trustee, on receipt of such Company Order, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture as to such series of Notes, when
(1) either
(a) all Notes of such series theretofore
authenticated and delivered (other than (i) Notes which have
been destroyed, lost or stolen and which have been replaced or
paid as provided in Section 306 and (ii) Notes for whose
payment Money has theretofore been deposited in trust with the
Trustee or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(b) all Notes of such series not so theretofore
delivered to the Trustee for cancellation (i) have become due
and payable, or (ii) will become due and payable at their
Stated Maturity within one year, and the Company has
irrevocably deposited or caused to be deposited with the
Trustee, as trust funds and/or obligations in trust for such
purpose, Money and/or Government Obligations which through the
payment of interest and principal in respect thereof in
accordance with their terms, without consideration of any
reinvestment thereof, will provide not later than the opening
of business on the due dates of any payment of principal and
interest with respect thereto, or a combination thereof, Money
in an amount sufficient to pay and discharge the entire
indebtedness on
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such Notes not theretofore delivered to the Trustee for
cancellation, including the principal thereof and interest
thereon, to the date of such deposit (in the case of Notes
which have become due and payable) or to the Maturity thereof,
as the case may be;
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company, including amounts owing to the
Trustee; and
(3) the Company has delivered to the Trustee a certificate of
Independent Public Accountants certifying as to the sufficiency of the
amounts deposited pursuant to subclause (b) of Clause (1) of this
Section for payment of the principal and interest on the dates such
payments are due, and an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein providing
for or relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to a series of Notes, the obligations of the Company and the Trustee to
the Holders of Notes of other series not so satisfied and discharged, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 612, if any, and, if Money
and/or Government Obligations shall have been deposited with the Trustee
pursuant to subclause (b) of Clause (1) of this Section, the obligations of the
Trustee under Section 402 and the last paragraph of Section 1003, shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
Money and Government Obligations deposited with the Trustee pursuant to Section
401 and all Money received by the Trustee in respect of Government Obligations
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes of each series and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such Money has or Government Obligations have been deposited with
or received by the Trustee; but such Money and Government Obligations need not
be segregated from other funds of the Trustee except to the extent required by
law.
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ARTICLE FIVE - REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"EVENT OF DEFAULT" wherever used herein with respect to Notes of any
series, and unless otherwise provided with respect to Notes of any series
pursuant to Section 301, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or be
effected by operation of law pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any interest on any Note
of such series when such interest becomes due and payable, and
continuance of such default for a period of 10 days; or
(2) default in the payment of the principal of any Note
of such series when it becomes due and payable at its Maturity; or
(3) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture or the Notes of
such series (other than a covenant or warranty a default in the
performance or the breach of which is elsewhere in this Section
specifically dealt with or which expressly has been included herein
solely for the benefit of a series of one or more Notes other than such
series), and continuance of such default or breach for a period of 30
days after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Notes of
such series a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(4) default in the payment at stated maturity of any
indebtedness of the Company or any Subsidiary for money borrowed (not
described above in paragraph (1) or (2)) in principal amount due at
stated maturity in excess of $10,000,000, and such default shall
continue, without being cured, waived or consented to and without such
indebtedness being discharged, for a period of 30 days beyond any
applicable period of grace, PROVIDED, HOWEVER, that the provisions of
this Section 501(4) shall not apply to any indebtedness of the Company
or any Subsidiary under which the rights and remedies of the lender in
the event of default are limited to repossession or sale of property
securing such obligation, with no recourse to the Company or any
Subsidiary; or
(5) the occurrence of an event of default as defined in
any mortgage, indenture or instrument under which there may be issued,
or by which there may be secured or evidenced, any indebtedness of the
Company or any Subsidiary for money borrowed (not described above in
paragraph (3)) (or the payment of which is guaranteed by the Company),
whether such indebtedness now exists or shall hereafter be created,
PROVIDED, HOWEVER, that no such event of default shall constitute an
Event of Default hereunder unless such event of default results in the
acceleration of such indebtedness prior to its expressed maturity,
which together with the principal amount of any such other
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indebtedness so caused to be accelerated, aggregates $10,000,000 or
more at any one point in time and such default shall not have been
cured or waived and such acceleration shall not have been rescinded or
annulled, PROVIDED, HOWEVER, that the provisions of this Section 501(5)
shall not apply to any indebtedness of the Company or any Subsidiary
under which the rights and remedies of the lender in the event of
default are limited to repossession or sale of property securing such
obligation, with no recourse to the Company or any Subsidiary; or
(6) the entry by a court or agency or supervisory authority
having competent jurisdiction of:
(a) a decree or order for relief in respect of
the Company or any Subsidiary in an involuntary proceeding
under any applicable bankruptcy, insolvency, reorganization or
other similar law and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(b) a decree or order adjudging the Company or
any Subsidiary to be insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition
of the Company or any Subsidiary and such decree or order
shall remain unstayed and in effect for a period of 60
consecutive days; or
(c) a decree or order appointing any Person to
act as a custodian, receiver, liquidator, assignee, trustee or
other similar official of the Company or any Subsidiary or of
any substantial part of the property of the Company or any
Subsidiary, as the case may be, or ordering the winding up or
liquidation of the affairs of the Company or any Subsidiary
and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(7) the commencement by the Company or any Subsidiary
of a voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding
seeking to be adjudicated insolvent or the consent by the Company or
any Subsidiary to the entry of a decree or order for relief in an
involuntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
insolvency proceeding against it, or the filing by the Company or any
Subsidiary of a petition or answer or consent seeking reorganization or
relief under any applicable law, or the consent by the Company or any
Subsidiary to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee,
trustee or similar official of the Company or any Subsidiary or any
substantial part of the property of the Company or any Subsidiary or
the making by the Company or any Subsidiary of an assignment for the
benefit of creditors, or the taking of corporate action by the Company
or any Subsidiary in furtherance of any such action; or
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(8) a final judgment, judicial decree or order for the
payment of money in excess of $10,000,000 shall be rendered against the
Company or any Subsidiary and such judgment, decree or order shall
continue unsatisfied for a period of 60 days without a stay of
execution; or
(9) any other Event of Default provided with respect to
the Notes of such series pursuant to Section 301.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing (an "Acceleration
Event"), then the Trustee or the Holders of not less than 25% in principal
amount of the outstanding Notes of any series may declare the principal of all
the Notes of such series, and the interest accrued thereon, to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the Holders), and upon any such declaration such amount shall become
immediately due and payable; provided, however, that any Event of Default
specified in Subsection 501(6) or Subsection 501(7) shall result in immediate
and automatic acceleration of maturity of the outstanding Notes of every series,
and the principal of all the Notes of every series and the interest accrued
thereon shall be due and payable immediately without notice, as if a declaration
of acceleration, as contemplated in this Section 502, had been made.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the Money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of not less
than a majority in principal amount of the Outstanding Notes of such series, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
of Money sufficient to pay
(a) all overdue installments of any interest on all
Notes of such series,
(b) the principal of any Notes of such series which
have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by such
Notes,
(c) to the extent that payment of such interest is
lawful, interest upon overdue installments of any interest at
the rate borne by such Notes, and
(d) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment
of the principal of and interest on Notes of such series which shall
have become due solely by reason of such Acceleration Event, shall have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company covenants that if an Event of Default occurs and is
continuing, the Company shall, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of such Notes, the whole amount of money then due
and payable (including any amount of money payable as a result of acceleration)
with respect to such Notes, with interest upon any overdue principal and, to the
extent that payment of such interest shall be legally enforceable, upon any
overdue installments of interest at the same rate of interest as is payable on
the principal amount of the Notes, and, in addition thereto, such further amount
of Money as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay the Money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the Money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Notes and collect the Money
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon such Notes, wherever situated.
If any Event of Default with respect to the Notes of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of such Notes by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the collection of all principal
and interest then due and payable hereunder (in the absence of any
acceleration), or the specific enforcement of any covenant or agreement in this
Indenture or such Notes or in aid of the exercise of any power granted herein or
therein, or to enforce any other proper remedy.
The rights and remedies under this Section 503 are in addition to the
other rights and remedies available under this Article 5 or otherwise legally
available.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
of any series or the property of the Company or such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of any overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
the principal and interest owing and unpaid in respect of the Notes of
any series for which the Trustee acts as trustee and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
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compensation, expenses, disbursements and advances of the Trustee, its
agents or counsel) and of the Holders of Notes of such series allowed
in such judicial proceeding, and
(2) to collect and receive any Money or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Notes of such series to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders of Notes of such series, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and any other amounts due the Trustee under
Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Note of
any series any plan of reorganization, arrangement, adjustment or composition
affecting the Notes of such series or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a Note of
such series in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES.
All rights of action and claims under this Indenture or any of the
Notes of any series may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery or
judgment, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
shall be for the ratable benefit of each and every Holder of a Note of such
series in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any Money collected by the Trustee with respect to any series of Notes
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such Money on
account of principal or interest, upon presentation of the Notes of such series,
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 607;
SECOND: In the case where the Notes are subordinated to Senior
Indebtedness, to the payment of amounts then due and unpaid to the
holders of Senior Indebtedness, to the extent required by the terms of
subordination.
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THIRD: In the case the principal of the Notes of such series
shall not have become due and payable, to the payment of the amounts
then due and unpaid upon the Notes of such series for interest in
respect of which or for the benefit of which such Money has been
collected, in the order of the Maturity of the installments of such
interest, with interest, to the extent that such interest is lawful and
has been collected by the Trustee, upon overdue installments of
interest at the rate borne by the Notes, such payments to be made
ratably, without preference or priority of any kind, according to the
aggregate amounts due and payable on such Notes for interest;
FOURTH: In the case the principal of the Notes of such series
shall have become due and payable, to the payment of the amounts then
due and unpaid upon the Notes for principal and interest in respect of
which or for the benefit of which such Money has been collected, with
interest, to the extent that such interest is lawful and has been
collected by the Trustee, upon overdue installments of interest at the
rate borne by the Notes, such payments to be made ratably, without
preference or priority of any kind, according to the aggregate amounts
due and payable on such Notes for principal and interest, respectively;
and
FIFTH: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. LIMITATIONS ON SUITS.
No Holder of any Note of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to
the Trustee of a continuing Acceleration Event or Event of Default;
(2) the Holders of not less than 25% in principal
amount of the Outstanding Notes of such series shall have made written
request to the Trustee to institute proceedings in respect of such
Acceleration Event or Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee
indemnity satisfactory to the Trustee against the costs, fees, expenses
and liabilities to be incurred in compliance with such request
(including reasonable fees of counsel);
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding Notes of such
series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Note to accelerate amounts due under the Notes when the
Trustee could not accelerate such amounts or
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otherwise exercise any remedies which the Trustee could not have exercised
hereunder, or any right to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all such Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Notwithstanding any other provision in this Indenture, but subject to
those limitations regarding acceleration which are applicable to the Trustee and
which are contained in Section 502, the Holder of any Note of any series shall
have the right, which is absolute and unconditional, to receive payment of the
principal of and (subject to Sections 305 and 307) interest on such Note on the
respective Stated Maturity or Maturities therefor specified in such Note and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder of a Note of any series has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and each such Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and each such Holder shall continue as though no such proceeding had
been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, and subject to Sections 502 and 503, no right or remedy herein conferred
upon or reserved to the Trustee or to each and every Holder of a Note is
intended to be exclusive of any other right or remedy, and every right and
remedy, to the extent permitted by law, shall be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note of any
series to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to any Holder of a Note of any series may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by such Holder, as the case may be.
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SECTION 512. CONTROL BY HOLDERS OF NOTES.
The Holders of a majority in principal amount of the Outstanding Notes
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Notes, PROVIDED
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and
(3) subject to Section 601, the Trustee need not take
any action which might be unjustly prejudicial to the rights of the
other Holders of Notes not joining in such action.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Notes of any series on behalf of the Holders of all the Notes of
such series may waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of or interest on any Note
of such series, or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of
the Holder of each Outstanding Note of such series.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants that (to the extent that it may lawfully do so)
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company expressly waives (to the extent
that it may lawfully do so) all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
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SECTION 515. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Notes by
its acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit other than the Trustee of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant, but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder or group of
Holders holding in the aggregate more than 10% in principal amount of the
Outstanding Notes of any series, or to any suit instituted by any Holder of a
Note for the enforcement of the payment of the principal of (or premium, if any)
or interest on such Note on or after the respective Stated Maturity or
Maturities expressed in such Note (or, in the case of redemption, on or after
the redemption date).
ARTICLE SIX - THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(1) With respect to Notes of any series, except during
the continuance of an Event of Default with respect to that series
only,
(a) the Trustee undertakes to perform such duties,
and only such duties, as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(b) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Indenture.
(2) With respect to Notes of any series, in case an
Event of Default has occurred and is continuing with respect to that
series only, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
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(3) No provision of this Indenture shall be construed
to relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that
(a) this Subsection shall not be construed to limit
the effect of Subsection (1) of this Section;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Notes of any series,
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Notes of such series,
provided such direction shall not be in conflict with any rule
of law or with this Indenture; and
(d) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(4) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder with
respect to the Notes of any series, the Trustee shall transmit to the Holders of
Notes of such series, in the manner and to the extent provided in Section 313
(b) of the Trust Indenture Act, notice of such default hereunder actually known
to a Responsible Officer of the Trustee, unless such default shall have been
cured or waived; PROVIDED, HOWEVER, that, except in the case of a default in the
payment of the principal of or interest on any Note of such series, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of Notes of such
series; and PROVIDED, FURTHER, that in the case of any default of the character
specified in Section 501 (3) with respect to Notes of such series, no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
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SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to Sections 315(a) through 315(d) of the Trust Indenture Act:
(1) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, coupon or other paper or
document reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or a
Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence shall be herein
specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate and/or Opinion of Counsel;
(4) the Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(5) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at
the request or direction of any of the Holders of Notes of any series
pursuant to this Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, fees,
expenses and liabilities which might be incurred by it, including
reasonable fees of counsel, in complying with such request or
direction;
(6) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, coupon or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine, during business hours
and upon reasonable notice, the books, records and premises of the
Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
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SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes of each series, except
the Trustee's Certificate of Authentication, shall be taken as the statements of
the Company and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Notes of any series,
except that the Trustee represents that it is duly authorized to execute and
deliver this Indenture, authenticate the Notes of any series and perform its
obligations hereunder. Neither the Trustee nor any Authenticating Agent shall be
accountable for the use or application by the Company of the Notes of any series
or the proceeds thereof. The Trustee shall not be responsible for any statement
made in any prospectus or similar document used to sell the Notes of any series,
except for statements regarding the Trustee in any Form T-1 application for
qualification of the Indenture.
SECTION 605. MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other Person that may be an agent of the Trustee or the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 310(b) and 311 of the Trust Indenture
Act, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or such
other Person.
SECTION 606. MONEY HELD IN TRUST.
Except as provided in Section 402 and Section 1003, Money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested. The Trustee shall be under
no liability for interest on any Money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by the Trustee hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable costs,
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to the Trustee's negligence or bad faith; and
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(3) to indemnify the Trustee and its agents for, and to
hold them harmless against, any loss, liability or expense incurred
without negligence or bad faith on their part, arising out of or in
connection with the acceptance or administration of the trust
hereunder, including the costs and expenses of defending themselves
against any claim or liability in connection with the exercise or
performance of any of their powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Notes upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the payment of principal of and interest on Notes of any series. "Trustee"
for the purposes of this Section includes any predecessor Trustee, but
negligence or bad faith of any Trustee shall not be attributed to any other
Trustee.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable compensation and the expenses and disbursements of
reasonable compensation and the expenses and disbursements of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee.
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, authorized under such laws to
exercise corporate trust powers, or any other person permitted by the Trust
Indenture Act to act as trustee under an indenture qualified under the Trust
Indenture Act and that has a combined capital and surplus (computed in
accordance with Section 310(a)(2) of the Trust Indenture Act) of at least
$50,000,000. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee pursuant to Section 610.
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(2) The Trustee may resign at any time by giving
written notice thereof to the Company. If the instrument of acceptance
by a successor Trustee required by Section 610 shall not have been
delivered to the Trustee within 30 days after the giving of such notice
of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(3) The Trustee may be removed at any time with respect
to Notes of any series by Act of the Holders of a majority in principal
amount of the Outstanding Notes of such series delivered to the Trustee
and the Company.
(4) If at any time:
(a) the Trustee shall fail to comply with the
obligations imposed upon it under Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or
any Holder of a Note who has been a bona fide Holder of a Note
for at least six months, or
(b) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board
Resolution, may remove the Trustee, or (ii) subject to Section 315 (e)
of the Trust Indenture Act, any Holder of a Note who has been a bona
fide Holder of a Note for at least six months may, on behalf of such
Holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, with respect to Notes of one or more series, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee with respect to the Notes of that or those series (it
being understood that any such successor Trustee may be appointed with
respect to the Notes of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Notes of
any particular series) and shall comply with the applicable
requirements of Section 610. If, within one year after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Notes of any series
shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Notes of such series delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with
the applicable requirements of Section 610, become the successor
Trustee with respect to the Notes of such series and to that extent
supersede the successor Trustee appointed by the Company. If no
successor Trustee with respect to the Notes of any series shall have
been so appointed by the Company or the Holders of Notes of such series
and accepted appointment in the manner required by Section 610, any
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Holder of a Note of such series who has been a bona fide Holder of a
Note of such series for at least six months may, on behalf of such
Holder and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee with
respect to the Notes of such series.
(6) The Company shall give notice of each resignation
and each removal of the Trustee with respect to the Notes of any series
and each appointment of a successor Trustee by mailing written notice
of such event by first-class mail, postage prepaid, to the Holders of
Notes of such series as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee
with respect to the Notes of such series and the address of its
Corporate Trust Office.
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(1) In case of the appointment hereunder of a successor
Trustee with respect to all Notes, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to
the retiring Trustee an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee shall
become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers,
trusts and duties hereunder of the retiring Trustee; but, on the
request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder.
(2) In case of the appointment hereunder of a successor
Trustee with respect to the Notes of one or more (but not all) series,
the Company, the retiring Trustee and each successor Trustee with
respect to the Notes of one or more series shall execute and deliver an
indenture supplemental hereto wherein each successor Trustee shall
accept such appointment and which (a) shall contain such provisions as
shall be necessary or desirable to transfer and confirm to, and to vest
in, each successor Trustee all the rights, powers, trusts and duties of
the retiring Trustee with respect to the Notes of that or those series
to which the appointment of such successor Trustee relates, (b) if the
retiring Trustee is not retiring with respect to all Notes, shall
contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Notes of that or those series as to which
the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee and (c) shall add to or change any of the provisions
hereof as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it
being understood that nothing herein or in such supplemental indenture
shall constitute such Trustees co-trustees of the same trust and that
each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such
supplemental
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indenture the resignation or removal of the retiring Trustee shall
become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Notes of that or those series to which the
appointment of such successor Trustee relates; but, on request of the
Company or any successor Trustee, such retiring Trustee shall duly
assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Notes
of that or those series to which the appointment of such successor
Trustee relates. Whenever there is a successor Trustee with respect to
one or more (but less than all) series of Notes issued pursuant hereto,
the terms "Indenture" and "Notes" shall have the meanings specified in
the provisos to the respective definitions of those terms in Section
101 which contemplate such situation.
(3) Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts referred to in paragraphs (1) or (2) of this
Section, as the case may be.
(4) No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes of any series shall have been
authenticated but not delivered by the Trustee then in office, any successor by
merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint one or more Authenticating Agents acceptable to
the Company with respect to one or more series of Notes which shall be
authorized to act on behalf of the Trustee to authenticate such Notes issued
upon original issue, exchange, registration of transfer, or pursuant to Section
306, and Notes so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of one or more series of Notes by the Trustee or the
Trustee's Certificate of Authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a Certificate of Authentication executed on behalf of
the Trustee by an Authenticating Agent.
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Each Authenticating Agent shall be acceptable to the Company and,
except as provided in this Indenture, shall at all times be a Corporation that
would be permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a) (2) of
the Trust Indenture Act) of at least $50,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, provided such Corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of Notes
of the series with respect to which such Authenticating Agent will serve, as
their names and addresses appear in the Note Register. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section. If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 607.
The provisions of Sections 308, 604 and 605 shall be applicable to each
Authenticating Agent.
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If an Authenticating Agent is appointed with respect to one or more
series pursuant to this Section, the Notes of such series may have endorsed
thereon, in addition to or in lieu of the Trustee's Certificate of
Authentication, an alternate Certificate of Authentication in substantially the
following form:
This is one of the Debt Securities of the series designated therein referred to
in the Indenture.
- ------------------------------------------------
As Authenticating Agent
By: _____________________________________________
Authorized Signature
Authentication Date: ____________________
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ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY
TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
In accordance with Section 312 (a) of the Trust Indenture Act, the
Company shall furnish or cause to be furnished to the Trustee
(1) semi-annually on January 1 and July 1 of each year,
a list, in each case in such form as the Trustee may reasonably
require, of the names and addresses of Holders of Notes of any series
for which the Trustee acts as trustee as of the applicable date, and
(2) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished,
PROVIDED, HOWEVER, that so long as the Trustee is the Note Registrar no such
list shall be required to be furnished for Notes of any series for which the
Trustee acts as Note Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS.
The Trustee shall comply with the obligations imposed upon it pursuant
to Section 312 of the Trust Indenture Act.
Every Holder of Notes of any series, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company, the Trustee,
any Paying Agent nor any Note Registrar shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders of Notes in accordance with Section 312 of the Trust Indenture Act,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under Section 312(b) of the Trust Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
(1) Within 60 days after May 15 of each year, beginning
May 15, 2003, if required by Section 313(a) of the Trust Indenture Act,
the Trustee shall transmit, pursuant to Section 313(c) of the Trust
Indenture Act, a brief report dated as of such May 15 with respect to
any of the events specified in said Section 313(a) which may have
occurred since the later of the immediately preceding May 15 and the
date of this Indenture.
(2) The Trustee shall transmit the reports required by
Section 313(a) of the Trust Indenture Act at the times specified
therein.
(3) Reports pursuant to this Section shall be
transmitted in the manner and to the Persons required by Sections
313(c) and 313(d) of the Trust Indenture Act.
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SECTION 704. REPORTS BY COMPANY.
The Company, pursuant to Section 314(a) of the Trust Indenture Act,
shall:
(1) file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Company
may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Securities Exchange Act of
1934 in respect of a Note listed and registered on a national
securities exchange or national market system as may be prescribed from
time to time in such rules and regulations; provided that
notwithstanding the requirements of such rules and regulations, so long
as any Note is Outstanding the Company shall file with the Trustee at a
minimum (a) as soon as practicable, but in any event no more than
ninety (90) days, after the end of each fiscal year, copies of a
balance sheet and statements of income and retained earnings of the
Company as of the end of and for such fiscal year, audited by
Independent Public Accountants, and (b) as soon as practicable, but in
any event no more than forty-five (45) days, after the end of each
quarterly fiscal period, except for the last quarterly fiscal period in
each fiscal year, a summary statement (which need not be audited) of
income and retained earnings of the Company for such period;
(2) file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by
the Commission, such additional information, documents and reports with
respect to compliance by the Company, as the case may be, with the
conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(3) transmit to the Holders of Notes of each series
within 30 days after the filing thereof with the Trustee, in the manner
and to the extent provided in Section 313(c) of the Trust Indenture
Act, such summaries of any information, documents and reports required
to be filed by the Company pursuant to paragraphs (a) and (b) of this
Section as may be required by rules and regulations prescribed from
time to time by the Commission; PROVIDED that notwithstanding the
requirements of such rules and regulations, so long as the Company has
a class of securities registered pursuant to the Securities Exchange
Act of 1934, the Company shall transmit to the Holders of Notes of each
series, in the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act, the information, documents and other reports
of the Company as are furnished to the holders of such class of
securities registered under the Securities Exchange Act of 1934;
PROVIDED FURTHER that so long as any Note is Outstanding, the Company
shall transmit to the Holders of Notes of each series at a minimum (a)
as soon
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as practicable, but in any event no more than ninety (90) days, after
the end of each fiscal year, copies of a balance sheet and statements
of income and retained earnings of the Company as of the end of and for
such fiscal year, audited by Independent Public Accountants, and (b) as
soon as practicable, but in any event no more than forty-five (45)
days, after the end of each fiscal quarterly period, except for the
last quarterly fiscal period in each fiscal year, a summary statement
(which need not be audited) of income and retained earnings of the
Company for such period; and
(4) furnish to the Trustee the Officers' Certificates and
notices required by Section 1010 hereof.
ARTICLE EIGHT - CONSOLIDATION, MERGER AND SALES
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
Nothing contained in this Indenture shall prevent any consolidation or
merger of the Company with or into any other Person or Persons (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any conveyance, transfer or lease of the property of the Company as an
entirety or substantially as an entirety, to any other Person (whether or not
affiliated with the Company); PROVIDED, HOWEVER, that:
(1) in case the Company shall consolidate with or merge
into another Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the entity formed by
such consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer, or which leases, the
properties and assets of the Company substantially as an entirety shall
be a Person organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed by the
successor Person and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of and
interest on all the Notes and the performance of every other covenant
of this Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such
transaction, no event which, after notice or lapse of time, or both,
would become an Event of Default shall have occurred and be continuing;
and
(3) either the Company or the successor Person shall
have delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, stating that such consolidation, merger, conveyance,
transfer or lease and such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
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SECTION 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY.
Upon any consolidation or merger or any conveyance, transfer or lease
of the properties and assets of the Company substantially as an entirety to any
Person in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
and thereafter, except in the case of a lease to another Person, the predecessor
Person shall be released from all obligations and covenants under this Indenture
and the Notes.
ARTICLE NINE - SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder of Notes of any series, the Company
(when authorized by or pursuant to a Board Resolution) and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto, which shall conform with the requirements of the Trust Indenture Act as
then in effect and be in form satisfactory to the Trustee, for any of the
following purposes:
(1) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Notes; or
(2) to add to or change any of the provisions of this
Indenture to change or eliminate any restrictions on the payment of
principal of or interest on Notes of any series or to permit or
facilitate the issuance of Notes of any series in uncertificated form,
provided any such action shall not adversely affect the interests of
the Holders of Notes of any series in any material respect; or
(3) to cure any ambiguity or to correct or supplement
any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not
adversely affect the interests of the Holders of Notes of any series in
any material respect; or
(4) to supplement any of the provisions of this
Indenture to such extent as shall be necessary to permit or facilitate
the defeasance and discharge of any Notes of any series pursuant to
Article Four; provided that any such action shall not adversely affect
the interests of any Holder of a Note of any series in any material
respect; or
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(5) to add to the covenants of the Company for the
benefit of the Holders of the Notes of each series (as shall be
specified in such supplemental indenture or indentures) or to surrender
any right or power herein conferred upon the Company; or
(6) to evidence and provide acceptance of the
appointment of a successor Trustee hereunder; or
(7) to establish the form or terms of the Notes of any series
as permitted by Sections 301 and 302..
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company (when authorized by or pursuant to a Board Resolution), and
the Trustee may enter into one or more indentures supplemental hereto (which
shall conform with the requirements of the Trust Indenture Act as then in
effect) for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of Notes of such series; PROVIDED, HOWEVER,
that no such supplemental indenture, without the consent of the Holder of each
Outstanding Note affected thereby, shall
(1) change the Stated Maturity of the principal of, or
any installment of interest on, any affected Note, or change the rate
of interest thereon or manner of calculation thereof or change any
applicable redemption provisions, or change the Place of Payment,
currency in which the principal of or interest on any Note, is payable,
or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof, or
(2) reduce the percentage of principal amount of
Outstanding Notes of any series which is required for consent to any
such supplemental indenture, or for consent to any waiver (of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, or
Section 513 or Section 1011, except to increase any such percentage or
to provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Note affected thereby.
A supplemental indenture which changes or eliminates any covenant or other
provision hereof which has expressly been included solely for the benefit of one
or more particular series of Notes, or which modifies the rights of the Holders
of Notes of such series with respect to such covenant or other provision, shall
be deemed not to affect the rights hereunder of the Holders of Notes of any
other series.
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It shall not be necessary for any Act of Holders of Notes under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
As a condition to executing, or accepting the additional trusts created
by, any supplemental indenture permitted by this Article or the modifications
thereby of the trust created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Note of the series affected thereby theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes of any series so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and executed
by the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 906. RECORD DATE.
If the Company shall solicit from the Holders of any series any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of such series entitled to consent to any
supplemental indenture, agreement or instrument or any waiver, and shall
promptly notify the Trustee of any such record date. If a record date is fixed
those Persons who were Holders of such series at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such supplemental indenture, agreement or instrument or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. The record date shall be a date no more than 30 days
prior to the first solicitation of Holders generally in connection therewith and
no later than the date such solicitation is completed. No such consent shall be
valid or effective for more than six months after such record date. Subject to
applicable law, until any supplemental indenture, agreement,
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instrument or waiver becomes effective, or a consent to it by a Holder of a Note
of such series shall cease to be valid and effective as set forth in the
preceding sentence, such consent is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note.
ARTICLE TEN - COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest
on the Notes in accordance with the terms thereof and this Indenture. References
herein to "principal" shall include any premium payable in respect of such
principal.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment an Office or Agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration, transfer or exchange and where notices and demands
to or upon the Company in respect of the Notes and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such Office or Agency. The Company hereby
initially designates the Corporate Trust Office of the Trustee as its Office or
Agency for each of the foregoing purposes. If at any time the Company shall fail
to maintain any such required Office or Agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it shall,
on or before each due date of the principal of or interest on the Notes of any
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum of Money sufficient to pay the principal or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided, and shall promptly notify the Trustee of its action or failure
so to act.
Whenever the Company shall have one or more Paying Agents, it shall, on
or prior to each due date of the principal of or interest on the Notes of any
series, deposit with any Paying Agent a sum of Money sufficient to pay the
principal or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled thereto, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
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The Company shall cause each Paying Agent other than the Trustee or the
Company to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent shall:
(1) hold all sums held by it for the payment of the
principal of or interest on Notes of any series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as provided in this Indenture;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Notes) in the making of any
payment of principal or interest on the Notes of any series; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such Money.
Any Money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Note of any series and remaining unclaimed for five years after such principal
or interest shall have become due and payable shall be paid to the Company on
Company Request, or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust Money, and all liability
of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in an
Authorized Newspaper in each Place of Payment, or to be mailed to Holders of
Notes, or both, notice that such Money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication or mailing, any unclaimed balance of such Money then remaining will
be repaid to the Company.
54
<PAGE>
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and its
Subsidiaries, and shall comply with all statutes, rules, regulations and orders
of and restrictions imposed by governmental and administrative authorities and
agencies applicable to the Company and its Subsidiaries; PROVIDED, HOWEVER, that
the foregoing shall not obligate the Company to preserve any such right or
franchise if the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries and that the loss thereof is not disadvantageous in any material
respect to any Holder.
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will:
(1) cause its properties and the properties of its
Subsidiaries (other than properties obtained by the Company or any
Subsidiary through foreclosure or other resolution of any loan or
properties subject to valid and binding leases with customers of the
Company or any Subsidiary) used or useful in the conduct of the
business of the Company and its Subsidiaries to be maintained and kept
in good condition, repair and working order and supplied with all
necessary facilities and equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the
foregoing shall not prevent the Company or a Subsidiary from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the judgment of the Company, desirable in
the conduct of its business and not disadvantageous in any material
respect to any Holder;
(2) take all appropriate steps to preserve, protect and
maintain the trademarks, trade names, copyrights, licenses and permits
used in the conduct of the business of the Company and its
Subsidiaries; PROVIDED, HOWEVER, that the foregoing shall not prevent
the Company or a Subsidiary from selling, abandoning or otherwise
disposing of any such trademark, trade name, copyright, license or
permit if such sale, abandonment or disposition is, in the judgment of
the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to any Holder; and
(3) the Company and each of its Subsidiaries shall
comply with all statutes, laws, ordinances, or government rules and
regulations to which it is subject, noncompliance with which would
materially adversely affect the business, prospects, earnings,
properties, assets or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole; PROVIDED, HOWEVER, that the
foregoing shall not require compliance with any statute, law,
ordinance, rule or regulation which is being contested in good faith.
55
<PAGE>
SECTION 1006. RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS.
The Company shall not (i) declare or pay any dividend, either in cash
or property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company) or (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, either directly or indirectly
through any Subsidiary, in respect of its capital stock (such dividends,
purchases, retirements, payments and distributions being herein collectively
called "RESTRICTED PAYMENTS") if, after giving effect thereto, an Event of
Default shall have occurred or be continuing. Notwithstanding the foregoing, the
Company may make a previously declared Restricted Payment if the declaration of
such Restricted Payment was permitted under this Section when made. For purposes
of this Section, the amount of any Restricted Payment payable in property shall
be deemed to be the fair market value of such property as determined by the
Board of Directors of the Company.
SECTION 1007. INSURANCE.
Subject to the right to sell, abandon or otherwise dispose of any
building or property whenever in the opinion of the Company the retention
thereof is inadvisable or not necessary to the business of the Company and its
Subsidiaries, the Company will at all times cause all buildings, equipment and
other insurable properties owned or operated by it or any Subsidiary to be
properly insured and kept insured with responsible insurance carriers, or
adequately insured by means of proper inter-insurance contracts, against loss or
damage by fire and other hazards, to the extent that such properties are usually
insured by Corporations owning or operating properties of a similar character;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Company or any
Subsidiary from maintaining any self-insurance program if adequate reserves are
maintained in connection with such program.
SECTION 1008. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (2)
all lawful claims for labor, material and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which adequate reserves (in the good faith judgment of the
Company) have been established.
56
<PAGE>
SECTION 1009. BOOKS AND RECORDS.
The Company shall, and shall cause each Subsidiary to, at all times
keep proper books of record and account in which proper entries shall be made in
accordance with generally accepted accounting principles and, to the extent
applicable, regulatory accounting principles.
SECTION 1010. STATEMENT BY OFFICERS AS TO DEFAULT.
(1) The Company will deliver to the Trustee, within 45
days after the end of each fiscal quarter, an Officers' Certificate,
stating whether or not to the best knowledge of the signers thereof the
Company is in default in the performance and observance of any of the
terms, provisions and conditions of this Indenture (other than a term,
provision or condition specifically dealt with in Clause (2) of this
Section 1010) and, if the Company shall be in default, specifying all
such defaults and the nature and status thereof of which they may have
knowledge.
(2) The Company will deliver to the Trustee, within
five days after the occurrence thereof, written notice of any event
which after notice or lapse of time or both would become an Event of
Default pursuant to Clause (4) of Section 501.
SECTION 1011. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1004 through 1009 (or any
other applicable covenants) with respect to the Notes of any series if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Notes of such series, by Act of such Holders, either
shall waive such compliance in such instance or generally shall have waived
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
* * * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
THE VALSPAR CORPORATION
By /s/Paul C. Reyelts
Name: Paul C. Reyelts
Title: Sr. V.P. & CFO
Attest: /s/Tim Beastrom
BANK ONE TRUST COMPANY, N.A., AS TRUSTEE
By /s/J. Morand
Name: J. Morand
Title: Vice President
Attest: /s/Janice Ott Rotunno
Vice President
58
<PAGE>
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
On the day of April 30, 2002, before me personally came Paul C.
Reyelts, to me known, who, being by me duly sworn, did depose and say that he is
the Sr. V.P. & CFO of THE VALSPAR CORPORATION, a Delaware corporation, one of
the persons described in and who executed the foregoing instrument; and that he
signed his name thereto by like authority.
Notary Public
/s/Eileen J. Biernat
[NOTARIAL SEAL]
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On the day of April 30, 2002, before me personally came J. Morand, to
me known, who, being by me duly sworn, did depose and say that s/he is Vice
President of Bank One Trust Company, N.A., a national banking association, one
of the persons described in and who executed the foregoing instrument; and that
s/he signed her/his name thereto by like authority.
Notary Public
/s/Caesar Frank Castro
[NOTARIAL SEAL]
59
<PAGE>
EXHIBIT A - GLOBAL NOTE PROVISIONS
1. PROVISION IN TEXT OF GLOBAL NOTE:
---------------------------------
Unless and until it is exchanged in whole or in part for Certificated
Notes, this Note may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. Unless this Note
is presented by an authorized representative of the Depositary to the issuer or
its agent for registration of transfer, exchange or payment, and any Note issued
is registered in the name of ______________ or such other name as may be
requested by an authorized representative of the Depositary (and any payment is
made to _____________ or such other entity as may be requested by an authorized
representative of the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, ____________, has an interest herein.
2. SCHEDULE TO BE ATTACHED TO GLOBAL NOTES:
----------------------------------------
SCHEDULE OF EXCHANGES FOR CERTIFICATED NOTES
The following exchanges of a part of the Global Note for Certificated
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global Note authorized officer
in in following such of
Principal Amount of Principal Amount of decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
---------------- ---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
A-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.C
<SEQUENCE>5
<FILENAME>valspar030264_ex4c.txt
<DESCRIPTION>FIRST SUPPLEMENTAL INDENTURE
<TEXT>
Exhibit 4(c)
----------------------------------------------------------------------------
THE VALSPAR CORPORATION
6% Notes due 2007
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 30, 2002
to
Indenture Dated as of April 24, 2002
BANK ONE TRUST COMPANY, N.A.
Trustee
----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I APPLICATION OF SUPPLEMENTAL INDENTURE AND CREATION OF 6% NOTES DUE 2007................................1
- ---------------------------------------------------------------------------------
Section 1.01 Application of this Supplemental Indenture......................................................1
--------------------------------------------------------
Section 1.02 Effect of Supplemental Indenture................................................................2
----------------------------------------------
Section 1.03 Designation and Amount of 2007 Notes............................................................2
--------------------------------------------------
Section 1.04 Terms; Form of Security.........................................................................2
-------------------------------------
Section 1.05 Payment of Principal and Interest...............................................................3
-----------------------------------------------
Section 1.06 Ranking.........................................................................................4
---------------------
Section 1.07 Security Registrar and Paying Agent.............................................................4
-------------------------------------------------
Section 1.08 Sinking Fund....................................................................................4
--------------------------
Article II DEFINITIONS AND INCORPORATION BY REFERENCE............................................................4
- -----------------------------------------------------
Section 2.01 Definitions.....................................................................................4
-------------------------
Section 2.02 Other Definitions...............................................................................7
-------------------------------
Section 2.03 Incorporation by Reference of Trust Indenture Act...............................................7
---------------------------------------------------------------
Article III REDEMPTION...........................................................................................7
- ----------------------
Section 3.01 Optional Redemption.............................................................................7
---------------------------------
Section 3.02 Notices to Trustee..............................................................................8
--------------------------------
Section 3.03 Selection of 2007 Notes To Be Redeemed..........................................................8
----------------------------------------------------
Section 3.04 Notice of Redemption............................................................................8
----------------------------------
Section 3.05 Effect of Notice of Redemption..................................................................9
--------------------------------------------
Section 3.06 Deposit of Redemption Price.....................................................................9
-----------------------------------------
Section 3.07 2007 Notes Redeemed in Part....................................................................10
-----------------------------------------
Article IV REMEDIES.............................................................................................10
- -------------------
Section 4.01 Events of Default..............................................................................10
-------------------------------
Article V COVENANTS.............................................................................................10
- -------------------
Section 5.01 Limitation on Liens............................................................................10
---------------------------------
Section 5.02 Limitation on Sale and Leaseback Transactions..................................................11
-----------------------------------------------------------
Article VI MISCELLANEOUS........................................................................................12
- ------------------------
Section 6.01 Issuance of Additional Notes...................................................................12
------------------------------------------
Section 6.02 Trust Indenture Act Controls...................................................................12
------------------------------------------
Section 6.03 Notices........................................................................................13
---------------------
Section 6.04 When 2007 Notes Disregarded....................................................................13
-----------------------------------------
Section 6.05 Rules by Trustee, Paying Agent and Security Registrar..........................................14
-------------------------------------------------------------------
Section 6.06 Payment on Business Days.......................................................................14
--------------------------------------
Section 6.07 Governing Law..................................................................................14
---------------------------
i
<PAGE>
Section 6.08 No Personal Liability of Directors, etc........................................................14
-----------------------------------------------------
Section 6.09 Successors.....................................................................................14
------------------------
Section 6.10 Multiple Originals.............................................................................14
--------------------------------
Section 6.11 Table of Contents; Headings....................................................................14
-----------------------------------------
Section 6.12 Not Responsible for Recitals or Issuance of 2007 Notes.........................................15
--------------------------------------------------------------------
Section 6.13 Adoption, Ratification and Confirmation........................................................15
-----------------------------------------------------
</TABLE>
ii
<PAGE>
This FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated
as of April 30, 2002, to the Indenture (the "Existing Indenture") dated as of
April 24, 2002, between THE VALSPAR CORPORATION, a Delaware corporation (the
"Company"), and BANK ONE TRUST COMPANY, N.A., as Trustee (the "Trustee") (the
Existing Indenture as supplemented by this Supplemental Indenture, the
"Indenture").
RECITALS
WHEREAS, the Company and the Trustee have heretofore executed and
delivered the Existing Indenture to provide for the issuance of the Company's
debt securities in one or more series;
WHEREAS, Sections 201, 301 and 901 of the Existing Indenture provide,
among other things, that the Company and the Trustee may, without the consent of
Holders, enter into indentures supplemental to the Existing Indenture to provide
for specific terms applicable to any series of notes and to add to the covenants
of the Company for the benefit of the Holders of each series of notes (and if
such covenants are to be for the benefit of less than all series of notes,
stating that such covenants are expressly being included solely for the benefit
of such series);
WHEREAS, the Company desires to provide for the issuance of new series
of debt securities to be designated as the 6% Notes due 2007 (the "2007 Notes"),
and to set forth the terms that will be applicable thereto; and
WHEREAS, all action on the part of the Company necessary to make this
Supplemental Indenture a valid agreement of the Company and to authorize the
issuance of the 2007 Notes under the Indenture (as supplemented hereby) has been
duly taken;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
APPLICATION OF SUPPLEMENTAL INDENTURE
AND CREATION OF 6% NOTES DUE 2007
Section 1.01 Application of this Supplemental Indenture.
Notwithstanding any other provision of this Supplemental Indenture, the
provisions of this Supplemental Indenture, including the covenants and Events of
Default set forth herein, are expressly and solely for the benefit of the 2007
Notes. The 2007 Notes constitute a series of notes as provided in Section 301 of
the Existing Indenture.
1
<PAGE>
Section 1.02 Effect of Supplemental Indenture.
With respect to the 2007 Notes only, the Existing Indenture shall be
supplemented pursuant to Sections 201, 301 and 901 thereof to establish the
terms of the 2007 Notes as set forth in this Supplemental Indenture, including
as follows:
(a) The definitions set forth in Article One of the
Existing Indenture shall be modified to the extent provided in
Articles I and II of this Supplemental Indenture;
(b) The forms and terms of the securities representing the
2007 Notes required to be established pursuant to Sections 201
and 301 of the Existing Indenture shall be established in
accordance with Sections 1.03, 1.04, 1.05 and 1.06 of this
Supplemental Indenture;
(c) Section 501(1) of the Existing Indenture regarding a
certain event of default is deleted as contemplated by Section
301(12) of the Existing Indenture and replaced in its entirety
by Section 4.01(a) of this Supplemental Indenture.
(d) The provisions of Article Ten of the Existing Indenture
regarding certain covenants of the Company shall be
supplemented and amended by the provisions of Article V of
this Supplemental Indenture.
(e) Section 901 of the Existing Indenture regarding the entering
into of supplemental indentures without the consent of holders
shall be amended by inserting therein a new Section 901(8) of
the Existing Indenture (as set forth in Section 6.01 this
Supplemental Indenture).
Section 1.03 Designation and Amount of 2007 Notes.
The 2007 Notes shall be known and designated as the "6% Notes due
2007." The initial maximum aggregate principal amount of 2007 Notes that may be
authenticated and delivered under this Supplemental Indenture shall not exceed
$350,000,000 except for 2007 Notes authenticated and delivered upon registration
or transfer of, or in exchange for, or in lieu of, 2007 Notes pursuant to
Sections 202, 304, 305, 306 or 905 of the Existing Indenture (unless the issue
of this series of 2007 Notes is "reopened" pursuant to Section 901(8) of the
Existing Indenture (as set forth in Section 6.01 of this Supplemental Indenture)
by issuing additional 2007 Notes of such series (the "Additional Notes"), in an
amount or amounts and registered in the names of such Persons as shall be set
forth in any written order of the Company for the authentication and delivery of
the 2007 Notes pursuant to Section 303 of the Existing Indenture.
Section 1.04 Terms; Form of Security.
The 2007 Notes and the Additional Notes shall together constitute one
series for purposes of the Existing Indenture and this Supplemental Indenture,
including, without limitation, waivers, amendments, redemptions and offers to
purchase. The Company shall issue any Additional Notes by adopting a Board
Resolution in the manner set forth in Section 301 of the Existing Indenture
providing for the terms of such issuance. Notwithstanding the foregoing, the
2007 Notes are issuable in fully registered form as Global Notes (unless
otherwise permitted by Section 202 of the Existing Indenture) without coupons
and shall be in substantially the form of Exhibit A
2
<PAGE>
hereto. The 2007 Notes are not issuable in bearer form. The terms and provisions
contained in the form of Note shall constitute, and are hereby expressly made, a
part of this Supplemental Indenture and the Company, by its execution and
delivery of this Supplemental Indenture, expressly agrees to such terms and
provisions and to be bound thereto. Any of the 2007 Notes may have such letters,
numbers or other marks of identification and such notations, legends and
endorsements as the officers executing the same may approve (execution thereof
to be conclusive evidence of such approval) and are not inconsistent with the
provisions of the Indenture (and which do not affect the rights, duties or
immunities of the Trustee), or as may be required to comply with any law or with
any rule or regulation made pursuant thereto or with any rule or regulation of
any securities exchange or automated quotation system on which the 2007 Notes
may be listed.
Section 1.05 Payment of Principal and Interest.
The 2007 Notes shall mature, and the principal of the 2007 Notes shall
be due and payable in U.S. Dollars to the Holders thereof, together with all
accrued and unpaid interest thereon, on May 1, 2007 (the Stated Maturity of
principal of the 2007 Notes).
The 2007 Notes shall bear interest at 6% per annum, from and including
April 30, 2002, or from the most recent Interest Payment Date (defined below) on
which interest has been paid or provided for until the principal thereof becomes
due and payable, and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum. Interest shall be calculated on the basis
of a 360-day year comprised of twelve 30-day months. Interest on the 2007 Notes
shall be payable semiannually in arrears in U.S. Dollars on May 1 and November 1
of each year, commencing on November 1, 2002 (each such date, an "Interest
Payment Date" for the purposes of the 2007 Notes under this Supplemental
Indenture). Payments of interest shall be made to the Person in whose name a
Note (or predecessor Note) is registered (which shall initially be the
Depositary) at the close of business on the April 15 or October 15, as the case
may be, next preceding such Interest Payment Date (each such date, a "Regular
Record Date" for the purposes of the 2007 Notes under this Supplemental
Indenture).
For so long as the 2007 Notes are represented by one or more Global
Notes, all payments of principal and interest shall be made by the Company by
wire transfer of immediately available funds in U.S. Dollars to the Depositary
or its nominee, as the case may be, as the registered owner of the Global Notes
representing such 2007 Notes. In the event that definitive 2007 Notes shall have
been issued, all payments of principal and interest shall be made by the Company
by wire transfer of immediately available funds in U.S. Dollars to the accounts
of the registered Holders thereof; PROVIDED, that the Company may elect to make
such payments at the office of the Paying Agent in The City of New York; and
PROVIDED FURTHER, that the Company may at its option pay interest by check to
the registered address of each Holder of a definitive Note.
3
<PAGE>
The 2007 Notes shall trade in the Depositary's Same-Day Funds
Settlement System until Stated Maturity (or until they are subject to
acceleration pursuant to Article V of the Existing Indenture) and secondary
market trading activity in the 2007 Notes may be required by the Depositary to
settle in immediately available funds.
The 2007 Notes are subject to redemption by the Company in whole or in
part in the manner described herein.
Section 1.06 Ranking.
The 2007 Notes shall be general unsecured obligations of the Company.
The 2007 Notes shall rank PARI PASSU in right of payment with all unsecured and
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company.
Section 1.07 Security Registrar and Paying Agent.
The Company hereby initially appoints the Trustee as Paying Agent and
Security Registrar for the 2007 Notes. The Company may change the Paying Agent
and Security Registrar without prior notice to the Holders of the 2007 Notes,
and the Company or any of its domestically incorporated Restricted Subsidiaries
may act as Paying Agent or Security Registrar.
Section 1.08 Sinking Fund.
The 2007 Notes are not subject to any sinking fund.
ARTICLE II
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 2.01 Definitions.
(a) All capitalized terms used herein and not otherwise defined below
shall have the meanings ascribed thereto in the Existing Indenture.
(b) The following are definitions used in this Supplemental Indenture
and to the extent that a term is defined both herein and in the
Existing Indenture, the definition in this Supplemental Indenture shall
govern with respect to the 2007 Notes.
"ADJUSTED TREASURY RATE" means, with respect to any date of redemption,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for that date of redemption.
4
<PAGE>
"ATTRIBUTABLE DEBT" for a lease means, as of the date of determination,
the present value of net rent for the remaining term of the lease. Rent shall be
discounted to present value at a discount rate that is compounded semi-annually.
The discount rate shall be 10% per annum or, if the Company elects, the discount
rate shall be equal to the weighted average Yield to Maturity of the 2007 Notes
under the Existing Indenture. Such average shall be weighted by the principal
amount of the notes of each series then outstanding. Rent is the lesser of (a)
rent for the remaining term of the lease assuming it is not terminated, or (b)
rent from the date of determination until the first possible termination date
plus the termination payment then due, if any. The remaining term of a lease
includes any period for which the lease has been extended. Rent does not include
(1) amounts due for maintenance, repairs, utilities, insurance, taxes,
assessments and similar charges, or (2) contingent rent, such as that based on
sales. Rent may be reduced by the discounted present value of the rent that any
sublessee must pay from the date of determination for all or part of the same
property. If the net rent on a lease is not definitely determinable, the Company
may estimate it in any reasonable manner.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the 2007 Notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of those 2007 Notes.
"COMPARABLE TREASURY PRICE" means, with respect to any date of
redemption, (i) the average of the Reference Treasury Dealer Quotations for the
date of redemption, after excluding the highest and lowest Reference Treasury
Dealer Quotations; or (ii) if the trustee obtains fewer than three Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.
"CONSOLIDATED TOTAL ASSETS" means total consolidated assets as
reflected in the Company's most recent consolidated balance sheet preceding the
date of a determination under Section 4.01(i) of this Supplemental Indenture.
"CONTROL," as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise. For purposes of this definition, the
terms "controlling," "controlled by" and "under common control with" have
correlative meanings.
"DEBT" means any debt for borrowed money or any guarantee of such debt.
"GOVERNMENT SECURITIES" means direct obligations of the United States
for the payment of which its full faith and credit is pledged, or obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States the timely payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States.
5
<PAGE>
"LIEN" means any mortgage, pledge, security interest or lien to secure
or assure payment of Debt.
"LONG-TERM DEBT" means Debt that by its terms matures on a date more
than 12 months after the date it was created or Debt that the obligor may extend
or renew without the obligee's consent to a date more than 12 months after the
date the Debt was created.
"OFFICER" means the Chief Executive Officer, the President, the Chief
Financial Officer, any Executive or Senior Vice President or the Principal
Accounting Officer (so long as such Principal Accounting Officer is at least a
Vice President) of the Company.
"PRINCIPAL PROPERTY" means (i) any manufacturing facility, whether now
or hereafter owned, located in the United States (excluding territories and
possessions other than Puerto Rico), except any such facility that in the
opinion of the board of directors of the Company or any authorized committee of
such board is not of material importance to the total business conducted by the
Company and its consolidated Subsidiaries, and (ii) any shares of stock of a
Restricted Subsidiary.
"QUOTATION AGENT" means J.P. Morgan Securities Inc. or another
Reference Treasury Dealer appointed by the Company.
"REDEMPTION DATE" means any date on which the 2007 Notes are redeemed
at the option of the Company.
"REFERENCE TREASURY DEALER" means (i) each of J.P. Morgan Securities
Inc., and its successors; PROVIDED, HOWEVER, that if any of the foregoing shall
cease to be a primary U. S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute another Primary
Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the
Company.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
Reference Treasury Dealer and any date of redemption, the average, as determined
by the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by that Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding that date of redemption.
"RESTRICTED SUBSIDIARY" means a Wholly-Owned Subsidiary that has
substantially all of its assets located in the United States (excluding
territories or possessions other than Puerto Rico) and owns a Principal
Property.
"SALE-LEASEBACK TRANSACTION" means an arrangement pursuant to which the
Company or a Restricted Subsidiary now owns or hereafter acquires a Principal
Property, transfers it to a person, and leases it back from the person.
6
<PAGE>
"WHOLLY-OWNED SUBSIDIARY" of any specified Person means a corporation
all of whose Voting Stock is owned by the Company or a Wholly-Owned Subsidiary,
the accounts of which are consolidated with those of the Company in its
consolidated financial statements.
"YIELD TO MATURITY" means the yield to maturity on a security at the
time of its issuance or at the most recent determination of interest on the
security.
Section 2.02 Other Definitions.
Term Defined in Section
---- ------------------
"Additional Notes" 1.03
Section 2.03 Incorporation by Reference of Trust Indenture Act.
The Indenture is subject to the mandatory provisions of the Trust
Indenture Act, which are incorporated by reference in and made a part of the
Indenture. The following Trust Indenture Act terms have the following meanings:
"indenture securities" means the 2007 Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Supplemental Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other Trust Indenture Act terms used in this Indenture that are defined
by the Trust Indenture Act, defined by Trust Indenture Act reference to another
statute or defined by Commission rule have the meanings assigned to them by such
definitions.
ARTICLE III
REDEMPTION
Section 3.01 Optional Redemption.
The 2007 Notes shall be subject to redemption, in whole or in part, at
the option of the Company at any time at a redemption price equal to the greater
of (i) 100% of the principal amount of the 2007 Notes, and (ii) as determined by
the Quotation Agent, the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of those
payments of interest accrued as of the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate plus 20 basis points plus,
in each case, accrued and unpaid interest thereon to the Redemption Date.
7
<PAGE>
Section 3.02 Notices to Trustee.
If the Company elects to redeem the 2007 Notes pursuant to this
Article, it shall notify the Trustee in writing of the Redemption Date and the
principal amount of 2007 Notes to be redeemed.
The Company shall give each notice to the Trustee provided for in this
Section at least 30 days but not more than 60 days before the Redemption Date
unless the Trustee consents to a shorter period. Such notice shall be
accompanied by an Officers' Certificate and an Opinion of Counsel from the
Company to the effect that such redemption will comply with the conditions
herein. If fewer than all the 2007 Notes are to be redeemed, the record date
relating to such redemption shall be selected by the Company and given to the
Trustee, which record date shall be not fewer than 15 days after the date of
notice to the Trustee. Any such notice may be canceled at any time prior to
notice of such redemption being mailed to any Holder and shall thereby be void
and of no effect.
Section 3.03 Selection of 2007 Notes To Be Redeemed.
If fewer than all the 2007 Notes are to be redeemed, the Trustee shall
select the 2007 Notes to be redeemed pro rata or by lot or by a method that
complies with applicable legal and securities exchange requirements, if any, and
that the Trustee in its sole discretion shall deem to be fair and appropriate
and in accordance with methods generally used at the time of selection by
fiduciaries in similar circumstances. The Trustee shall make the selection from
outstanding 2007 Notes not previously called for redemption. The Trustee may
select for redemption portions of the principal of the 2007 Notes that have
denominations larger than $1,000. The 2007 Notes and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Supplemental Indenture that apply to the 2007 Notes called
for redemption also apply to portions of the 2007 Notes called for redemption.
The Trustee shall notify the Company promptly of the 2007 Notes or portions of
the 2007 Notes to be redeemed.
Section 3.04 Notice of Redemption.
At least 30 days but not more than 60 days before a date for redemption
of Securities, the Company shall mail a notice of redemption by first-class mail
to each Holder of Securities to be redeemed at such Holder's registered address.
The notice shall identify the 2007 Notes to be redeemed and shall
state:
(a) the Redemption Date;
(b) the redemption price and the amount of accrued interest to
the Redemption Date;
(c) the name and address of the Paying Agent;
8
<PAGE>
(d) that the 2007 Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(e) if fewer than all the outstanding the 2007 Notes are to be
redeemed, the certificate numbers and principal amounts of the
particular the 2007 Notes to be redeemed;
(f) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on the 2007
Notes (or portion thereof) called for redemption ceases to accrue on
and after the Redemption Date;
(g) the CUSIP number, if any, printed on the 2007 Notes being
redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the 2007 Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
Section 3.05 Effect of Notice of Redemption.
Once notice of redemption is mailed, the 2007 Notes called for
redemption become due and payable on the Redemption Date and at the redemption
price stated in the notice. Upon surrender to the Paying Agent, such 2007 Notes
shall be paid at the redemption price stated in the notice, plus accrued
interest, if any, to the Redemption Date; provided, however, that if the
Redemption Date is after a Regular Record Date and on or prior to the Interest
Payment Date, the accrued interest shall be payable to the holder of the
redeemed the 2007 Notes registered on the relevant Regular Record Date. Failure
to give notice or any defect in the notice to any Holder shall not affect the
validity of the notice to any other Holder.
Section 3.06 Deposit of Redemption Price.
Prior to 11:00 a.m. New York City time on the Redemption Date, the
Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary
is the Paying Agent, shall segregate and hold in trust) money sufficient to pay
the redemption price of and accrued interest on all 2007 Notes to be redeemed on
that date other than the 2007 Notes or portions of the 2007 Notes called for
redemption that have been delivered by the Company to the Trustee for
cancellation.
9
<PAGE>
Section 3.07 2007 Notes Redeemed in Part.
Upon surrender of a 2007 Note that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder (at the
Company's expense) a new 2007 Notes equal in principal amount to the unredeemed
portion of the 2007 Notes surrendered.
ARTICLE IV
REMEDIES
Section 4.01 Events of Default.
The following event of default shall replace the event of default in
Section 501(1) of the Existing Indenture in its entireity and shall be in
addition to the other events of default in Section 501 of the Existing
Indenture, which shall in all respects be applicable in respect of the 2007
Notes.
For purposes of the 2007 Notes, Section 501(1) of the Existing
Indenture is replaced in its entirety by inserting therein a new Section 501(1)
to read as follows:
"(1) default in the payment of any interest on any Note of
such series when such interest becomes due and payable, and continuance
of such default for a period of 30 days;".
ARTICLE V
COVENANTS
The covenants set forth in this Article V shall be applicable to the
Company in addition to the covenants in Article Ten of the Existing Indenture,
which shall in all respects be applicable in respect of the 2007 Notes.
Section 5.01 Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind on a Principal Property securing Debt unless one
or more of the following exceptions apply:
(a) the Lien equally and ratably secures the 2007 Notes and the Debt or
any other obligation of the Company or a Subsidiary; PROVIDED that any
obligation secured by a Lien is not subordinated to the 2007 Notes;
(b) the Lien secures Debt incurred to finance all or part of the
purchase price or the cost of construction or improvement of property of the
Company or a Restricted Subsidiary; PROVIDED that (i) such Lien shall not extend
to any other Principal Property owned by the Company or a Restricted Subsidiary
at the time the Lien is incurred, except for unimproved real
10
<PAGE>
property used for such construction or improvement, and (ii) such Debt shall not
be incurred more than 18 months after the later of the acquisition, completion
of construction or improvement, or commencement of full operation of the
property subject to the Lien;
(c) the Lien is on property of an entity at the time the entity merges
into or consolidates with the Company or a Restricted Subsidiary;
(d) the Lien is on property at the time such property is acquired by
the Company or a Restricted Subsidiary;
(e) the Lien is on property of a corporation at the time such
corporation becomes a Restricted Subsidiary;
(f) the Lien secures Debt of a Restricted Subsidiary owing to the
Company or another Restricted Subsidiary;
(g) the Lien is in favor of a government or governmental entity and
secures (i) payments pursuant to a contract or statute, or (ii) Debt incurred to
finance all or part of the purchase price or cost of construction or improvement
of the property subject to the Lien;
(h) the Lien extends, renews or replaces in whole or in part a Lien
("existing Lien") permitted by any of clauses (a) through (g) or extends to
property that at the time is not a Principal Property; PROVIDED that (i) such
Lien does not extend beyond the property subject to the existing Lien and
improvements and construction on such property, and (ii) the amount of the Debt
secured by such Lien does not exceed the amount of the Debt secured at the time
by the existing Lien unless the existing Lien or a predecessor Lien was incurred
under clause (a) or (f); or
(i) the Debt plus all other Debt secured by Liens on Principal Property
at the time does not exceed 10% of Consolidated Total Assets, excluding (i) Debt
secured by a Lien permitted by any of clauses (a) through (h) of this Section
and (ii) Debt secured by a Lien incurred prior to the date of the Existing
Indenture that would have been permitted by any of those clauses if the Existing
Indenture had been in effect at the time the Lien was incurred, and including
Attributable Debt for any lease permitted by Section 4.02(d) of this
Supplemental Indenture not otherwise permitted by any of clauses (a) through (h)
of this Section.
Section 5.02 Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into a Sale-Leaseback Transaction for a Principal Property, unless one
or more of the following exceptions apply:
(a) the lease has a term of three years or less;
11
<PAGE>
(b) the lease is between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries;
(c) the Company or a Restricted Subsidiary under Sections 5.01(b)
through (h) of this Supplemental Indenture may create a Lien on the property to
secure Debt in an amount at least equal to the Attributable Debt for the lease;
(d) the Company or a Restricted Subsidiary under Section 5.01(i) of
this Supplemental Indenture could create a Lien on the Principal Property to
secure Debt in an amount at least equal to the Attributable Debt for the lease;
or
(e) the Company or a Restricted Subsidiary, within 180 days of the
effective date of the lease, retires Long-Term Debt of the Company or a
Restricted Subsidiary in an amount at least equal to the Attributable Debt for
the lease, excluding Debt of the Company that is subordinated to the 2007 Notes
and Debt, if paid in cash, that is owned by the Company or a Restricted
Subsidiary.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Issuance of Additional Notes.
For purposes of the 2007 Notes, Section 901 of the Existing Indenture
is hereby amended by inserting therein a new Section 901(8) to read as follows:
"(8) to issue additional Notes of any series in the future
pursuant to Section 303 of this Indenture; provided that such
additional Notes have the same terms as, and be deemed part of the same
series as, the applicable series of Notes issued hereunder."
Section 6.02 Trust Indenture Act Controls.
If any provision of this Supplemental Indenture limits, qualifies or
conflicts with another provision that is required or deemed to be included in
this Supplemental Indenture by the Trust Indenture Act, the required or deemed
provision shall control.
12
<PAGE>
Section 6.03 Notices.
Any notice or communication shall be in writing and delivered in person
or mailed by first-class mail or sent by facsimile (with a hard copy delivered
in person or by mail promptly thereafter) and addressed as follows:
if to the Company:
The Valspar Corporation
1101 Third Street South
Minneapolis, Minnesota 55415
Attention: Rolf Engh
Facsimile: (612) 375-7313
with a copy to:
Maslon Edelman Borman & Brand LLP
3300 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Martin R. Rosenbaum
if to the Trustee:(312) 336-8840/1
Bank One Trust Company, N.A.
1 Bank One Plaza
Chicago, Illinois 60670
Attention: Corporate Trust Administration
Facsimile: (312) 336-8840/1
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Section 6.04 When 2007 Notes Disregarded.
In determining whether the Holders of the required principal amount of
2007 Notes have concurred in any direction, waiver or consent, 2007 Notes owned
by the Company or by any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company shall be
disregarded and deemed not to be Outstanding, except that, for the purpose of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only 2007 Notes that a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded. Also, subject to
the foregoing, only 2007 Notes Outstanding at the time shall be considered in
any such determination.
13
<PAGE>
Section 6.05 Rules by Trustee, Paying Agent and Security Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Security Registrar and the Paying Agent or co-registrar may make
reasonable rules for their functions.
Section 6.06 Payment on Business Days.
If a payment date is not a Business Day, payment shall be made on the
next succeeding day that is a Business Day, and no interest shall accrue for the
intervening period. If a Regular Record Date is not a Business Day, the Regular
Record Date shall not be affected.
Section 6.07 Governing Law.
THIS SUPPLEMENTAL INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Section 6.08 No Personal Liability of Directors, etc.
None of the Company's directors, officers, employees, incorporators or
stockholders, as such, shall have any liability for any of the Company's
obligations under the 2007 Notes, the Indenture, or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
2007 Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the 2007 Notes.
Section 6.09 Successors.
All agreements of the Company in the Indenture and the 2007 Notes shall
bind its successors. All agreements of the Trustee in the Indenture shall bind
its successors.
Section 6.10 Multiple Originals.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. One signed copy is enough to prove this
Supplemental Indenture.
Section 6.11 Table of Contents; Headings.
The table of contents and headings of the Articles and Sections of this
Supplemental Indenture have been inserted for convenience of reference only, are
not intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
14
<PAGE>
Section 6.12 Not Responsible for Recitals or Issuance of 2007 Notes.
The recitals contained herein and in the 2007 Notes, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representation as to the validity or sufficiency of this
Supplemental Indenture or of the 2007 Notes. The Trustee shall not be
accountable for the Company's use of the proceeds from the 2007 Notes or for
monies paid over to the Company pursuant to this Supplemental Indenture.
Section 6.13 Adoption, Ratification and Confirmation.
The Existing Indenture, as supplemented and amended by this First Supplemental
Indenture, is in all respects hereby adopted, ratified and confirmed.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
THE VALSPAR CORPORATION
By: /s/ Paul C. Reyelts
Name: Paul C. Reyelts
Title: Sr. V.P. & CFO
BANK ONE TRUST COMPANY, N.A., as Trustee
By: /s/ Sharon McGrath
Name: Sharon McGrath
Title: Vice President
16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.D
<SEQUENCE>6
<FILENAME>valspar030264_ex4d.txt
<DESCRIPTION>REGISTRANT'S 6% NOTE
<TEXT>
Exhibit 4(d)
THE VALSPAR CORPORATION
6% NOTE DUE 2007
No. 1
$350,000,000.00 CUSIP: 920355AA2
The Valspar Corporation, a Delaware corporation (herein called the
"Company"), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of $350,000,000.00 Dollars on May 1, 2007,
and to pay interest thereon at the rate of 6% per annum from the Initial
Interest Accrual Date or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, on May 1 and November 1 of each
year, commencing November 1, 2002 (each an "Interest Payment Date"), until the
principal hereof is paid or made available for payment.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, except as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which will be the April 15 and October 15 of each year.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date and either may be
paid to the Person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on a Special Record Date for the payment of
such defaulted interest to be fixed by the Trustee, notice whereof shall be
given to the Holders not less than ten days prior to such Special Record Date,
or may be paid at any time in any other lawful manner, all as more fully
provided in the Indenture. Payment of the principal of and interest on this Note
will be made at the office or agency as may be established by the Company
pursuant to the Indenture (initially the principal corporate trust office of the
Trustee in the Borough of Manhattan, The City of New York, (the "Corporate Trust
Office")), in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of the
Company (i) by check mailed to the address of the Person entitled thereto as
such address shall appear in the Note Register or (ii) by wire transfer to an
account maintained by the Person entitled thereto as specified in the Note
Register. Payments of principal and interest at maturity will be made against
presentation of this Note at the Corporate Trust Office (or such other office as
may be established pursuant to the Indenture), by check or wire transfer.
Reference is hereby made to the further provisions of this Note set
forth on the reverse side hereof, which further provisions shall for all
purposes have the same effect as though fully set forth at this place.
<PAGE>
Unless the Certificate of Authentication hereon has been executed by
the Trustee or an Authenticating Agent under the Indenture referred to on the
reverse hereof by the manual signature of one of its authorized officers, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by the manual or facsimile signature of its Chief Executive Officer,
its President or one of its Vice Presidents and attested by the manual or
facsimile signature of its Secretary or one of its Assistant Secretaries.
Date:
THE VALSPAR CORPORATION
By: /s/Paul C. Reyelts
Name: Paul C. Reyelts
Title: Sr. V.P. & CFO
ATTEST:
/s/Rolf Engh
Secretary
Trustee's Certificate of Authentication
This is one of the Notes described in the
Indenture.
Bank One Trust Company, N.A.
as Trustee
Authentication By: /s/J. Morand
Date: 4/30/02 Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
THE VALSPAR CORPORATION
[__]% NOTE DUE [____]
[Unless and until it is exchanged in whole or in part for Definitive
Notes, this Note may not be transferred except as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. Unless this Note
is presented by an authorized representative of the Depository to the issuer or
its agent for registration of transfer, exchange or payment, and any Note issued
is registered in the name of [________________] or such other name as may be
requested by an authorized representative of the Depository (and any payment is
made to [________________] or such other entity as may be requested by an
authorized representative of the Depository), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, [________________], has an interest herein.](1)
This Note is one of a duly authorized issue of series of Notes of the
Company (the "2007 Notes") designated as its [__]% Notes due [______] limited in
initial aggregate principal amount to $[________________] (unless this series of
Notes is "reopened" in accordance with the Indenture) issued and to be issued
under an Indenture dated as of April 24, 2002 and a supplemental indenture dated
as of [________], 200[_] (the Indenture as supplemented by the Supplemental
Indenture is referred to herein as the "Indenture"), between the Company and
[________________], as Trustee (herein called the "Trustee," which term includes
any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the Holders of all
series of Notes of the Company (collectively, the "Notes") and the terms upon
which the Notes are, and are to be, authenticated and delivered. All terms used
in this Note which are defined in the Indenture shall have the meanings assigned
to them in the Indenture.
[The Notes shall be subject to redemption, in whole or in part, at the
option of the Company at any time at a redemption price equal to the greater of
(i) 100% of the principal amount of the [____] Notes, and (ii) as determined by
the Quotation Agent, the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of those
payments of interest accrued as of the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate plus [__] basis points plus,
in each case, accrued and unpaid interest thereon to the Redemption Date.]
- ---------------------------
(1) This paragraph should be included only for a Global Note.
<PAGE>
[Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the date of redemption to each holder of the [____] Notes to
be redeemed. Unless the Company defaults in payment of the redemption price, on
or after the date of redemption, interest will cease to accrue on the Notes or
portions thereof called for redemption.]
[The [____] Notes are not subject to any sinking fund.]
If an Acceleration Event with respect to the [____] Notes shall occur
and be continuing, the Trustee or the Holders of not less than [__]% in
principal amount of the Outstanding [____] Notes may declare the principal of
all [____] Notes due and payable in the manner and with the effect provided in
the Indenture. An "Acceleration Event" is the occurrence and continuance of an
Event of Default specified in the Indenture. The Indenture provides that such
declaration and its consequences may, in certain events, be annulled by the
Holders of a majority in principal amount of the Outstanding [____] Notes.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of [____] Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of [____] Notes at the time Outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of [____] Notes at the time
Outstanding, on behalf of the Holders of all [____] Notes, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, places and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company to be maintained for that purpose in the Borough
of Manhattan, The City of New York, or at such other office or agency as may be
established by the Company for such purpose pursuant to the Indenture (initially
the principal corporate trust office of the Trustee in the Borough of Manhattan,
The City of New York), duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company, and duly executed by the Holder
hereof or such Holder's attorney duly authorized in writing, and thereupon one
or more new [____] Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
<PAGE>
The [____] Notes are issuable only in fully registered form, without
coupons, in denominations of $1,000 or any amount in excess thereof which is an
integral multiple of $1,000. As provided in the Indenture, and subject to
certain limitations therein set forth, [____] Notes are exchangeable for a like
aggregate principal amount of the [____] Notes in authorized denominations, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to the due presentment of this Note for registration of transfer
or exchange, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary.
Interest on the [____]Notes shall be computed on the basis of a 360-day
year of twelve 30-day months. Interest shall be payable to and excluding any
Interest Payment Date.
The Trustee, in its individual or any other capacity, may make loans
to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not the Trustee.
This Note shall not be valid until authenticated by the manual
signature of the Trustee or an Authenticating Agent.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUT (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
Each Holder of a [____] Notes covenants and agrees by such Holder's
acceptance thereof to comply with and be bound by the foregoing provisions.
<PAGE>
ASSIGNMENT FORM
To assign this [____] Note, fill in the form below: (I) or (we) assign and
transfer this Note to
----------------------------------------
(Insert assignee's Soc. Sec. or Tax I.D. no.)
----------------------------------------------
----------------------------------------------
----------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this [____] Note on the books of the Company. The agent may
substitute another to act for him.
Date: _________________
Your Signature: __________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee
<PAGE>
SCHEDULE OF EXCHANGES FOR DEFINITIVE NOTES(2)
The following exchanges of a part of the Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal Amount
of this Global Note
following such decrease Amount of decrease Amount of increase
Date of Exchange (or in Principal Amount in Principal Amount Signature of authorized
increase) of this Global Note of this Global Note officer of Trustee
________________ ___________________ ___________________ _______________________
</TABLE>
- ----------------------------
(2) This should be included only in a Global Note.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.H
<SEQUENCE>7
<FILENAME>valspar030264_ex10h.txt
<DESCRIPTION>2001 STOCK INCENTIVE PLAN
<TEXT>
Exhibit 10(h)
THE VALSPAR CORPORATION
2001 STOCK INCENTIVE PLAN
Section 1. Purpose.
The purpose of The Valspar Corporation 2001 Stock Incentive Plan (the "Plan") is
to provide a continuing, long-term incentive to eligible employees of The
Valspar Corporation ("Valspar") and of any subsidiary corporation of Valspar (a
"Subsidiary"), as herein defined; to provide a means of rewarding outstanding
performance; and to enable Valspar to maintain a competitive position to attract
and retain personnel necessary for continued growth and profitability.
Section 2. Definitions.
The following words and phrases as used herein shall have the meanings set forth
below:
2.1 "Agreement" means an Agreement by and between Valspar and a Recipient
of an award under this Plan setting forth the terms and conditions of that
award.
2.2 "Board" shall mean the Board of Directors of Valspar.
2.3 "Change in Control" shall mean any of the following: (i) any
individual, entity or group becomes a "Beneficial Owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of at least 20% but less
than 50% of the voting stock of Valspar in a transaction that is not previously
approved by the Board of Directors of Valspar; (ii) any individual, entity or
group becomes a Beneficial Owner, directly or indirectly, of at least 50% of the
voting stock of Valspar; (iii) the persons who were directors of Valspar
immediately prior to any contested election or series of contested elections,
tender offer, exchange offer, merger, consolidation, other business combination,
or any combination of the foregoing cease to constitute a majority of the
members of the Board of Directors of Valspar immediately following such
occurrence; (iv) any merger, consolidation, reorganization or other business
combination where the individuals or entities who constituted Valspar's
shareholders immediately prior to the combination will not immediately after the
combination own at least 50% of the voting securities of the business resulting
from the combination; (v) the sale, lease, exchange or other transfer of all or
substantially all the assets of Valspar to any individual, entity or group not
affiliated with Valspar; (vi) the liquidation or dissolution of Valspar; or
(vii) the occurrence of any other event by which Valspar no longer operates as
an independent public company.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean the Compensation Committee of the Board of
Directors of Valspar as constituted from time to time; provided, however, each
member of the Committee shall be an outside director within the meaning of
Section 162(m) of the Code and the rules and regulations thereunder.
2.6 "Common Stock" or "Stock" shall mean the common stock, $.50 par value,
of Valspar.
<PAGE>
2.7 "Designated Executive Officers" shall mean any executive officer
designated by the Committee, but shall always include the Chairman, the Chief
Executive Officer, the Chief Operating Officer and the President.
2.8 "Fair Market Value" of Common Stock on any given date shall be
determined by the Committee as follows:
(a) the average of the highest and lowest sales prices reported on the New
York Stock Exchange on the date in question, or if such Stock shall not have
been traded on such exchange on such date, the average of the highest and lowest
sales price reported on such exchange on the first day prior thereto on which
such Stock was so traded; or
(b) if (a) is not applicable, by any means fair and reasonable by the
Committee, which determination shall be final and binding on all parties.
2.9 __________ "Performance Period" shall mean the period of time over
which the performance criteria and target are determined for the achievement of
a Stock Incentive Award.
2.10 "Plan" shall mean this 2001 Stock Incentive Plan of Valspar.
2.11 "Recipient" shall mean a person to whom a Stock Incentive Award is
granted.
2.12 "Restriction Period" shall mean the period of time during which any
restrictions apply to a restricted Stock Incentive Award.
2.13 "Stock Incentive Award" shall mean an award of shares of Common Stock,
which may, in the discretion or the Committee, be subject to certain
restrictions and may, in the discretion of the Committee, be awarded only upon
the achievement of certain performance goals.
2.14 "Subsidiary" shall mean any corporation that at the time qualifies as
a subsidiary of Valspar under Section 424(f) of the Code.
2.15 "Valspar" shall mean The Valspar Corporation, a Delaware corporation,
with its principal offices in Minneapolis, Minnesota.
Section 3. Shares Available Under Plan.
The number of shares which may be issued pursuant to Stock Incentive Awards
under this Plan shall not exceed 1,000,000 shares of the Common Stock of
Valspar; provided, however, that shares which become available as a result of
canceled, lapsed or terminated Stock Incentive Awards granted under this Plan
shall be available for issuance pursuant to Stock Incentive Awards subsequently
granted under this Plan. The shares issued pursuant to a Stock Incentive Award
granted under this Plan may be authorized and unissued shares. In the event of
any merger, reorganization, consolidation, recapitalization, stock dividend,
other change in corporate structure affecting the Common Stock, or spin-off or
other distribution of assets to shareholders, such substitution or adjustment
shall be made in the aggregate number of shares reserved for issuance under the
Plan and in the number of shares subject to outstanding Stock Incentive Awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number.
<PAGE>
Section 4. Administration.
4.1 The Plan will be administered by the Committee. Other than references
in this Section 4.1, references to the "Committee" in this Plan shall be deemed
to refer to the Board where the Board has, by resolution duly adopted, withdrawn
from the Committee the authority to administer the Plan. Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange, the
Committee may delegate to executive officers of Valspar the authority to
exercise the powers granted to the Committee in this Plan, subject to the review
of the Committee or the Board as set forth in Section 4.5 below.
4.2 The Committee will have plenary authority, subject to provisions of the
Plan, to determine when and to whom to grant Stock Incentive Awards, the number
of shares covered by each award, the time or times within which such awards may
be subject to forfeiture, and all other conditions of the awards. The Committee
may also condition the grant of a Stock Incentive Award upon the attainment of
specified performance targets. The provisions of Stock Incentive Awards need not
be the same with respect to each Recipient.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation or effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Recipients, all successors, and any other person, whether that person is
claiming under or through any Recipient or otherwise.
4.4 No member of the Committee will be liable, in the absence of bad faith,
for any act or omission with respect to his or her services on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to its Bylaws.
4.5 The Committee will regularly inform the Board as to its actions with
respect to all Stock Incentive Awards granted under the Plan and the terms and
conditions and any such awards in a manner, at any times, and in any form as the
Board may reasonably request.
Section 5. Recipients.
Employees of Valspar and any Subsidiary who are responsible for or contribute to
the management, growth and/or profitability of the business of Valspar and any
Subsidiary, are eligible to be granted Stock Incentive Awards under the Plan.
Recipients under the Plan shall be selected from time to time by the Committee,
in its sole discretion, from those eligible, and the Committee shall determine,
in its sole discretion, the number of shares covered by each award. Stock
Incentive Awards may be granted under this Plan to persons who have previously
received Stock Incentive Awards or other benefits under other plans of Valspar.
<PAGE>
Section 6. Stock Incentive Awards.
6.1 A Recipient of a Stock Incentive Award shall not have any rights with
respect to such award, unless and until such Recipient has executed an Agreement
evidencing the award and has delivered a fully executed copy thereof to Valspar,
and has otherwise complied with the then applicable terms and conditions. The
Committee may designate whether such Stock Incentive Award will be subject to
restrictions and whether such Stock Incentive Award will be payable only upon
achievement of performance goals, or both.
6.2 Subject to the provision of this Plan and the Agreement, at the time of
the grant of a restricted Stock Incentive Award, the Committee shall determine
the Restriction Period during which the shares awarded shall be subject to the
risk of forfeiture and other terms and conditions as the Committee may specify.
The Committee may, at any time, accelerate the date of lapse of restrictions
with respect to all or any part of the shares awarded to a Recipient. Except as
provided in Section 12 and as otherwise provided in the Agreement, Recipients of
restricted Stock Incentive Awards shall not be required to make any payment or
provide consideration other than the rendering of services. The shares subject
to a restricted Stock Incentive Award shall be held by Valspar during the
Restriction Period and no rights therein may be transferred, gifted, or
otherwise alienated or hypothecated during the Restriction Period. If the shares
are maintained in uncertificated form, Valspar shall denote such shares as being
subject to restrictions as set forth in the Agreement as part of the book entry
of the restricted Stock Incentive Award on Valspar's Stock records.
6.3 Except as provided in Sections 6.2 and 6.3 above or as otherwise
provided in the Agreement, the Recipient shall have, with respect to the shares
of Stock awarded, all of the rights of a shareholder of Valspar, including the
right to vote the shares and the right to receive any cash or stock dividends.
The Committee, in its sole discretion, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested in
additional shares of Stock (to the extent shares are available under Section 3),
subject to the same restrictions as the shares of Stock on which such dividends
were issued. Valspar shall mark its Stock records that the Recipient is the
owner of unrestricted Common Stock promptly after, and only after, the
Restriction Period, if any, shall have expired without forfeiture in respect of
such shares of restricted Stock.
6.4 The Committee, in its sole discretion, may determine those Recipients
who are eligible for an unrestricted Stock Incentive Award and the number of
shares covered by such Award. The Committee may award unrestricted Stock to any
Recipient, including Designated Executive Officers, or may establish performance
criteria and performance targets for each Recipient or group of Recipients and
the Performance Period over which such performance will be measured, and such
other terms and conditions as the Committee shall determine; provided, however,
that with respect to Stock Incentive Awards based on performance criteria for a
Designated Executive Officer: (i) the Committee will identify in writing
specific performance targets, Performance Period and maximum Stock Incentive
Award levels within the first ninety days of each fiscal year of Valspar; (ii)
the performance targets for Designated Executive Officers shall include one or
more of the following categories, either on an absolute basis or a comparative
basis: gross or net sales, expenses as a percentage of net sales, inventory
turns, earnings per share, return on average equity, cash flow, modified cash
flow, working capital, and gallon sales; (iii) the Committee will certify in
writing following the end of the Performance Period whether the performance
targets have been met and the level earned under the criteria;
<PAGE>
and (iv) the maximum Stock Incentive Award for any Designated Executive Officer
under this Plan for any fiscal year shall be 100,000 shares. Subject to the
limitations described above on awards to Designated Executive Officers, the
Committee may accelerate the achievement of performance targets, award a pro
rata portion of the Stock Incentive Award prior to the end of a Performance
Period or make any other adjustment during the Performance Period as it deems
appropriate, including in the event of a Change in Control. Upon achievement of
such performance targets as determined by the Committee, Valspar shall cause to
be issued to the Recipient a stock certificate representing such Shares as the
Recipient earned. Unless the Stock Incentive Award otherwise provides, a Stock
Incentive Award based on the achievement of performance goals shall not be
considered as outstanding for any purpose, and no dividends, voting or other
rights shall attach to such Shares to be issued based on the achievement of
performance goals until such time as the Shares are issued to the Recipient.
Section 7. Rights of Corporation, Rights of Employees and Recipients.
7.1 Nothing in the Plan shall interfere with or limit in any way the right
of Valspar or any Subsidiary to terminate any employee's or Recipient's
employment at any time, nor confer upon any employee or Recipient any right to
continue in the employ of Valspar or any Subsidiary.
7.2 In the event of a Change in Control, unless the Agreement provides
otherwise: (i) any restrictions on any restricted Stock Incentive Award shall
lapse and be of no further force and effect; and (ii) the Recipient shall
receive any Stock Incentive Award outstanding at the time of the event
constituting a Change in Control, without regard to the achievement of the
performance targets or the completion of the Performance Period.
7.3 The existence of outstanding awards shall not affect in any way the
right or power of Valspar, any of its Subsidiaries or Valspar's stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in Valspar's capital structure or its business, or any issuance of
Common Stock or subscription rights thereto, or any merger or consolidation of
Valspar, or any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of Valspar, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise; provided, however, that if the
outstanding shares of Common Stock of Valspar shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, combination of shares
or recapitalization, the number and kind of shares subject to the Plan or
subject to any restricted or unrestricted, performance or non-performance based
Stock Incentive Awards theretofore granted, shall be adjusted as provided in
Section 3.
7.4 The rights and interests of any Recipient in the Plan shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
<PAGE>
Section 8. Stockholder Approval; Securities Registration.
8.1 The adoption of this Plan and the categories of performance criteria
for Designated Executive Officers under Section 6.5 shall be subject to the
approval of the stockholders of Valspar, and the categories of performance
criteria, or new categories of performance criteria for Designated Executive
Officers shall be subject to stockholder approval at the first meeting of
stockholders following the end of each fifth fiscal year after 2001.
8.2 As promptly as practicable, Valspar shall prepare, file and maintain
with the Securities and Exchange Commission, an effective registration statement
on Form S-8 (or, in Valspar's sole discretion, on any appropriate comparable
form under the Securities Act of 1933, as amended, as may then be available to
Valspar) relating to the resale of Common Stock granted pursuant to the Plan.
8.3 All shares of Common Stock issued in book entry form on Valspar's Stock
records pursuant to any Stock Incentive Award under this Plan shall be subject
to such stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Stock is then
listed and any applicable Federal or state securities laws, and the Committee
may cause a legend or legends to be put on any such certificates or to make
appropriate reference to such restrictions on the book entry with regard to
uncertificated shares of Stock. The Committee may require each Recipient to
represent to and agree with Valspar in writing that the Recipient is acquiring
the shares without a view to distribution thereof.
Section 9. Effect on Other Plans.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. Participation in the
Plan shall not affect a Recipient's eligibility to participate in any other
benefit or incentive plan of Valspar and any Stock Incentive Awards made
pursuant to the Plan shall not be included in the Recipient's remuneration for
the purpose of determining the benefits provided under any other plan of Valspar
unless specifically provided in such other plan.
Section 10. Amendment and Termination.
The Plan may be amended or terminated at any time by the Board of Directors of
Valspar or by the Committee, without further action on the part of the
stockholders of Valspar, provided that no amendment or termination of the Plan,
without the consent of the Recipient, shall materially adversely affect or
impair a Recipient's rights under any Stock Incentive Award granted pursuant
hereto, and further provided that, unless the stockholders of Valspar shall have
approved the same, no amendment shall, either directly or indirectly: (i)
materially increase the total number of shares of Stock that maybe awarded under
this Plan to all Recipients; or (ii) materially increase the benefits accruing
to Recipients under the Plan.
<PAGE>
Section 11. Legal Requirements; Governing Law.
11.1 The delivery of shares of Common Stock of Valspar pursuant to the Plan
shall be subject to all applicable laws, rules and regulations, and shall not be
made until all required approvals of the proper government agencies have been
obtained.
11.2 The Plan, and all Agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware.
Section 12. Withholding Taxes.
Each Recipient shall, no later than the date as of which any part of the value
of an award first becomes includable as compensation in the gross income of the
Recipient for Federal income tax purposes, pay to Valspar, or make arrangements
satisfactory to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to the award. The
obligations of Valspar under the Plan shall be conditional on such payment or
arrangements, and Valspar and its Subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Recipient. With respect to any award under the Plan, if the
terms of such award so permit, a Recipient may elect by written notice to
Valspar to satisfy part or all of the withholding tax requirements associated
with the award by (i) authorizing Valspar to retain from the number of shares of
Common Stock that would otherwise be deliverable to the Recipient, or (ii)
delivering to Valspar from shares of Common Stock already owned by the
Recipient, that number of shares having an aggregate Fair Market Value equal to
part or all of the tax payable by the Recipient under this Section 12. Any such
election shall be in accordance with, and subject to, applicable tax and
securities laws, regulations and rulings, and in the event shares are withheld,
the amount withheld may not exceed the minimum required federal, state and FICA
withholding amount.
Section 13. Duration of the Plan.
Unless earlier terminated by action of the Board of Directors and subject to the
limitations under Section 10, the Plan shall remain in effect until all shares
awarded under the Plan are free of all restrictions imposed by the Plan and the
Agreements.
Approved by the Board of Directors: December 12, 2000
Approved by the Shareholders: February 28, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.I
<SEQUENCE>8
<FILENAME>valspar030264_ex10i.txt
<DESCRIPTION>SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<TEXT>
Exhibit 10(i)
THE VALSPAR CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR
RICHARD ROMPALA
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. The Valspar Corporation (the Company) hereby
establishes, effective as of October 29, 2001, an unfunded supplemental
executive retirement plan to be known as the Valspar Corporation Supplemental
Executive Retirement Plan (the Plan) for Richard Rompala (the Participant).
1.2 PURPOSE. The Plan is established and is intended as an
unfunded plan to be maintained for the purpose of providing retirement income to
the Participant, and as such it is intended that the Plan be exempt from the
relevant requirements of Title I of the Employee Income Retirement Security Act
of 1974 (ERISA), as amended. The Plan is not intended to satisfy the
qualification requirements of Internal Revenue Code Section 401.
ARTICLE 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have the respective meanings set forth below and, when intended, such terms
shall be capitalized.
a. "Actuarial Equivalent" means the equivalence in present value
of the annual annuity payment for the Participant's life
expectancy set forth in the table in Section 5.1, using the
mortality table assumptions defined under Section 417(e) of
the Code and an interest rate equal to the ten-year Treasury
Note rate on the most recent sale prior to the 90th day before
the date the first payment is made, except that, in
determining the Actuarial Equivalent of the single lump sum
only, the interest rate as determined above shall not exceed
7.5%.
b. "Board" means the Board of Directors of the Company.
c. "Cause" shall be determined solely by the Committee in
the exercise of good faith and reasonable judgment, and shall
mean the Participant willfully engaging in illegal conduct
that is materially and demonstrably injurious to the Company.
d. "Change in Control" shall have the same meaning as set
forth in the Change in Control Agreement between the Company
and the Participant as in effect on the date of this
Agreement, or as that definition may be amended from time to
time. In the event the Change in Control Agreement is no
longer in effect, the definition of Change in Control in that
Agreement shall nevertheless continue to apply to this Plan.
<PAGE>
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Committee" means the Compensation Committee of the Board, or
any other committee designated by the Board to administer the
Plan, pursuant to Article 3.1 herein.
g. "Company" means The Valspar Corporation, a Delaware
corporation, or any successor thereto as provided in Article 8
herein.
h. "Disability" shall have the same meaning as used in the
Company's long-term disability plan to determine the
Participant's entitlement to benefits under that plan.
i. "Effective Date" means the date the Plan becomes effective, as
set forth in Article 1.1 herein.
j. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time or any successor act
thereto.
k. "Participant" means Richard Rompala.
l. "Plan Year" means, for the first year of the Plan, the period
from the Effective Date through December 31, 2001. Thereafter,
Plan Year means the consecutive twelve-month period beginning
each January 1 and ending December 31.
m. "Spouse" means Jean Rompala.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other committee designated by the Board to
administer the Plan. The Committee may delegate any or all of its administrative
responsibilities hereunder.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein
and subject to ratification by the Board, the Committee shall have the full
power to amend or terminate the Plan at any time (subject to Article 7 herein);
to construe and interpret the Plan and to make any other determination, which
may be necessary or advisable for the Plan's administration.
3.3 DECISIONS BINDING. All determinations and decisions made by
the Committee pursuant to the provisions of the Plan, as ratified by the Board,
and all related orders or resolutions of the Board shall be final, conclusive,
and binding on all persons, including the Company, its employees, the
Participant, and their estates and beneficiaries.
<PAGE>
3.4 NAMED FIDUCIARY. The Company shall be the named fiduciary of the
Plan.
ARTICLE 4. ELIGIBILITY
4.1 TERMINATION OF EMPLOYMENT. The Participant shall be vested
and shall be entitled to receive the Participant's SERP benefits as set forth in
Article 5.1 if the Participant's employment with the Company terminates for any
of the following reasons:
a. Involuntary termination by the Company other than for Cause;
b. Voluntary resignation by the Participant prior to March 1,
2005, but only with the consent of the Compensation Committee
of the Board;
c. Voluntary resignation by the Participant anytime after a
Change in Control or anytime after February 28, 2005;
d. The Participant's death while employed by the Company; or
e. The Participant's Disability while employed by the Company.
4.2 FORFEITURE OF BENEFIT. If the Participant voluntarily
resigns prior to March 1, 2005 other than as set forth in Section 4.1(b) or (c)
above, or if the Company terminates the Participant's employment for Cause at
any time, all benefits set forth in this Plan are forfeited.
ARTICLE 5. BENEFIT AMOUNT AND PAYMENT
5.1 SERP BENEFIT. If the Participant is eligible for the SERP
benefit under Section 4.1, the Company shall make or commence payment of the
SERP benefit to the Participant on the date selected by the Participant
following the later of the date the Participant attains the age of 56, or the
date on which the Participant's termination of employment occurs (which date
shall not be earlier than 30 days after the Participant's termination of
employment); provided, however, that no payment under this Plan shall be made or
first commence in any fiscal year of the Company in which the Participant is a
"covered employee" as defined in Section 162(m) of the Code. The SERP benefit
shall be the amount set forth in the table below as the Annual Annuity payable
during the Participant's life.
-------------------------------------------------------------------------
Age at Commencement Minimum Annual Annuity Payable for the
of SERP benefit Lump Sum Value Participant's Life
-------------------------------------------------------------------------
56 $2,790,000 $250,000
57 $3,300,000 $300,000
58 $3,790,000 $350,000
60 or older $4,000,000 $400,000
-------------------------------------------------------------------------
<PAGE>
In lieu of the annual payment for the Participant's life only, the
Participant may elect, as provided in Section 5.2 below, one of the following
forms: (i) a single lump sum; or (ii) an annual payment for the joint lives of
the Participant and Spouse (a joint and 100% survivor annuity); or (iii) an
annual payment for the life of the Participant and, upon the death of the
Participant, 50% of the annual payment for the life of the Spouse (a joint and
50% survivor annuity). The annual payment of the joint and 100% survivor annuity
or the joint and 50% survivor annuity shall be the Actuarial Equivalent of the
Annual Annuity payable for the Participant's life only. The single lump sum
shall be the Actuarial Equivalent of the Annual Annuity payable for the
Participant's life only, but not less than the amount set forth in the table
above as the Minimum Lump Sum Value.
5.2 METHOD OF PAYMENT ELECTION. The Participant must make a
written election of the method and commencement of payment to the Committee,
which shall be effective immediately. Following such initial election, the
Participant may change his election at any time and from time to time
thereafter; provided, however, that any such change in his election as to the
method or commencement of payment will be valid only if it is made prior to the
earliest of the following dates:
1. the date the Participant terminates employment with the Company;
2. the last day of the Company's fiscal year prior to the year in which
payment is made or first commences;
3. January 1 of the year in which payment is made or first commences;
and
4. the date that is six months prior to the date payment is made or
first commences.
Any election made after the earliest of the above dates will not be valid or
enforceable. The filing of any such valid written method of payment election
shall act as an immediate revocation as to any prior election. If the
Participant fails to provide a valid written method of payment election to the
Committee, the Participant's SERP benefit will be paid in an annual payment over
the Participant's life.
5.3 DISABILITY. If the Participant suffers a Disability, the
SERP benefit shall be the amount determined under Section 5.1 as if the
Participant had terminated employment immediately prior to the Disability;
provided, however, that if the Disability occurs prior to the date the
Participant attains age 56, the SERP benefit shall be determined as if the
Participant had attained age 56. If the Participant suffers a Disability and is
unable to apply such payment to the Participant's own interest and advantage,
the Company or provider or payor of the benefit shall make any such payment or
payments due the Participant under the terms of the Plan in accordance with the
written directions of the Spouse (or if the Spouse is unable to so act, the
person or entity established, to the reasonable satisfaction of the Company and
its legal counsel, to have the legal authority to act on behalf of the
Participant with respect to such matters following his Disability), and the
Company and provider and payor shall be relieved of any further liability upon
payment of any amounts due hereunder at the direction of the Spouse (or such
other person or entity).
<PAGE>
5.4 DEATH OF PARTICIPANT; DEATH OF SPOUSE. If the Participant
dies prior to the date the SERP benefit commences, the Spouse shall receive the
SERP benefit as if the Participant had terminated employment immediately prior
to the date of death; provided, however, that if the death occurs prior to the
date the Participant attains age 56, the SERP benefit shall be determined as if
the Participant had attained age 56. Any payment due the Spouse shall be the
form described in Section 5.1 elected by the Participant and in effect at the
time of the Participant's death. If the Participant dies after the date the SERP
benefit commences, any payment due the Spouse shall be determined by the form of
payment described in Section 5.1 then in effect.
If the Spouse dies prior to the Participant, upon the death of the
Participant, no further payments will be made under the Plan.
5.5 CHANGE IN CONTROL. If a Change in Control occurs, the SERP
benefit shall be the amount determined under Section 5.1 as of the Participant's
date of termination of employment; provided, however, that if the Change of
Control occurs prior to the date the Participant attains age 56, the SERP
benefit shall be determined as if the Participant had attained age 56
immediately prior to his termination of employment after the Change in Control.
ARTICLE 6. CLAIMS REVIEW
6.1 CLAIMS PROCEDURE AND REVIEW. The Participant or Spouse (the
"claimant") may make a claim for Plan benefits within the time and in the manner
described herein. Such claim shall be made within 60 days after the claim arises
by filing a written request with the Vice President of Human Resources of the
Company, on behalf of the Committee. The Committee shall determine the claim
within a reasonable time after the receipt of the written claim. Notice of the
Committee's decision shall be communicated to the claimant in writing. If the
claim is denied, the notice shall include the specific reasons for the denial
(including reference to pertinent Plan provisions), a description of any
additional material or information necessary for the Committee to reconsider the
claim, the reasons for any of such additional material or information, and an
explanation of the review procedure.
6.2 APPEAL. The Participant, Spouse or his or her duly
authorized representative may, within 90 days after receiving such written
notice, request the Board of the Company to review the Committee's decision. The
Board shall afford the claimant a hearing and the opportunity to review all
pertinent documents and submit issues and comments orally and in writing and
shall render a review decision in writing within 120 days after receipt of
request for review. The review proceeding shall be conducted in accordance with
the rules and regulations adopted from time to time by the Board.
ARTICLE 7. AMENDMENT AND TERMINATION
The Committee hereby reserves the right to amend, modify, and/or
terminate the Plan at any time subject to ratification by the Board. However, no
such amendment or termination shall in any manner adversely affect the rights or
benefits of the Participant previously accrued herein without the consent of the
Participant.
<PAGE>
ARTICLE 8. MISCELLANEOUS
8.1 UNFUNDED PLAN. The Plan is intended to be an unfunded plan
maintained primarily to provide supplemental pension benefits for Richard
Rompala, and is further intended to be exempt from the provisions of Parts 2, 3,
and 4 of Title I of ERISA.
8.2 UNSECURED GENERAL CREDITOR. The Participant and the
Participant's beneficiaries, heirs, successors, and assigns shall have no
secured legal or equitable rights, interest, or claims in any property or assets
of the Company, nor shall they be beneficiaries of, or have any rights, claims,
or interests in any life insurance policies, annuity contracts, or the proceeds
therefrom owned or which may be acquired by the Company. Except as provided in
Article 8.3, such policies, annuity contracts, or other assets of the Company
shall not be held under any trust for the benefit of the Participant, the
Participant's beneficiaries, heirs, successors, or assigns, or held in any way
as collateral security for the fulfilling of the obligations of the Company
under this Agreement. Any and all of the Company's assets and policies shall be,
and remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under this Agreement shall be that of an unfunded and
unsecured promise to pay money in the future.
8.3 TRUST FUND. Prior to a Change in Control, the Company may in
its discretion establish one or more trusts, which may, but is not required to
be, irrevocable, with such trustees as the Committee may approve, and shall
deposit such amount of cash or other marketable securities as it determines in
its sole discretion, for the purpose of providing for the payment of benefits
under this Agreement. Immediately upon the occurrence of an event constituting a
Change in Control, the Company shall establish one or more such trusts, which
shall be irrevocable, and shall deposit cash or other marketable instruments
equal to the lump sum amount that would then be payable under Section 5.1 above
if the Participant terminated employment immediately after the Change in Control
(but no less than the minimum lump sum payable at age 56) and thereafter, the
Company shall immediately (but no more often than annually) deposit such
additional amount of cash or other marketable instruments equal to any increase
in such lump sum amount. The assets of such trust or trusts shall be subject to
the claims of the Company's general creditors. To the extent any benefits
provided under this Agreement are actually paid from any such trust, the Company
shall have no further obligation with respect thereto, but to the extent not so
paid, such benefits shall remain the obligation of, and shall be paid by the
Company.
8.4 COSTS OF THE PLAN. All costs of implementing and
administering the Plan, and all costs incurred in providing the benefits
described herein, shall be borne by the Company.
8.5 TAX WITHHOLDING. The Company shall have the right to require
the Participant to remit to the Company an amount sufficient to satisfy Federal,
state, and local tax withholding requirements, or to deduct from all payments
made pursuant to the Plan amounts sufficient to satisfy such withholding
requirements.
<PAGE>
8.6 NONTRANSFERABILITY. The Participant's rights to benefits
provided hereunder may not be sold, transferred, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. In no event shall the Company make any payment under the Plan to
any assignee or creditor of the Participant or to any assignee or creditor of
the Spouse.
8.7 SUCCESSORS. All obligations of the Company under the Plan
shall be binding upon and inure to the benefit of any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
8.8 SEVERABILITY. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
8.9 APPLICABLE LAW. To the extent not preempted by federal law,
the Plan shall be governed by and construed in accordance with the laws of the
state of Minnesota.
The Valspar Corporation Participant
/s/Michael P. Sullivan /s/Richard M. Rompala
Michael P. Sullivan Richard M. Rompala
Chair of the Chief Executive Officer
Compensation Committee The Valspar Corporation
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.J
<SEQUENCE>9
<FILENAME>valspar030264_ex10j.txt
<DESCRIPTION>KEY EMPLOYEE LONG-TERM INCENTIVE BONUS PROGRAM
<TEXT>
Exhibit 10(j)
THE VALSPAR CORPORATION
KEY EMPLOYEE LONG-TERM INCENTIVE BONUS PROGRAM
1. PURPOSE. The purpose of the Key Employee Long Term Incentive Bonus
Program (the "Program") is to provide an incentive to eligible
management employees to increase the shareholder value of The Valspar
Corporation (the "Company") through a cash award based on the earnings
per share growth of the Company during a three fiscal year cycle. This
Program shall be in addition to any other award or grant under any
other bonus or stock incentive plan of the Company.
2. RECIPIENTS. The Compensation Committee shall determine the Employees of
the Company, other than Richard Rompala, who shall participate in this
Program (the "Recipient") and who are eligible to receive an Award
pursuant to Section 5 below, provided the Recipient satisfies the
conditions set forth herein. The Compensation Committee, in its
discretion, may make any Employee who had been appointed or promoted
after the commencement of a Performance Period(s) eligible to receive
an Award, provided that such Employee's Award shall be pro rated based
on the period during which the Employee participates for the remainder
of such Performance Period(s). Except as otherwise provided in Section
6, an Employee shall cease to be an eligible Recipient under this
Program upon the earlier of (a) his or her termination of employment
with Valspar for any reason or (b) a determination by the Compensation
Committee that he or she shall no longer be eligible for this Program.
3. PERFORMANCE PERIOD. The Performance Period will be three consecutive
fiscal years of the Company. The first Performance Period will commence
November 1, 2001. A new Performance Period shall commence on the first
day of each subsequent fiscal year and end on the last day of the third
fiscal year following such date.
4. PERFORMANCE GOAL. The Performance Goal shall be the cumulative earnings
per share ("EPS") of common stock of the Company for each Performance
Period as set by the Committee and recorded in its minutes. The
Performance Goal may be expressed as a range. The Performance Goal must
be established no later than the end of the ninth month after the
beginning of the Performance Period, and shall not be modified
thereafter. The Performance Goal for a subsequent Performance Period
need not be consistent with the Performance Goal for any prior
Performance Period. The EPS shall be determined based upon the audited
financial statements of the Company; provided that the Committee, in
its discretion, may adjust such EPS for extraordinary items. The
Committee will, as soon as administrative feasible following the end of
each Performance Period, certify in writing as to the actual EPS
achieved and the level of the Awards based on the Performance Goal.
<PAGE>
5. AWARDS. Each Recipient who meets the conditions for payment as
described below will receive a cash bonus (the "Award") equal to a
percentage of the Recipient's annual base salary in effect on the first
day of the Performance Period, such percentage to be determined by the
Compensation Committee and recorded in its minutes. If the Performance
Goal is expressed as a range, the amount of each Recipient's Award will
vary in direct proportion to the level of achievement within the
Performance Goal range; provided, however, that the Committee may, at
the time the Award is set, establish a minimum Award and a maximum
Award regardless of the level of achievement of the Performance Goal.
The Company shall notify each Recipient of the amount or range of his
or her individual Award as soon as administratively feasible after the
Committee establishes the Award.
6. CONDITIONS OF PAYMENT. Except as provided in the next sentence or in
Section 9 below, no Recipient shall be entitled to any Award under this
Program unless the Recipient is an active employee of the Company on
the last day of the Performance Period. Notwithstanding the foregoing,
a Recipient shall be entitled to an Award for a Performance Period if
the Recipient's employment with the Company terminated during the
Performance Period as a result of death, Disability or Retirement,
provided that the amount of the Award (as otherwise determined as
provided in Section 5 above at the end of each Performance Period in
effect at the time of death, Disability or Retirement) pro-rated for
that portion of the Performance Period(s) during which the Recipient
was employed. For purposes of this Program: (a) Disability shall mean
the date the Recipient qualifies for long term disability benefits
under any program maintained by the Company; and (b) Retirement shall
mean termination of employment at any time after the Recipient has
attained age 60 (or age 55 with an executed non-compete agreement).
Nothing herein shall require the payment of any Award prior to the date
set forth in Section 7.
7. PAYMENT OF AWARDS; WITHHOLDING. The date of payment of an Award shall
be as soon as administratively feasible following the certification of
the achievement of the Performance Goal by the Compensation Committee,
but not later than 90 days after the end of the Performance Period. The
Company shall withhold from the payment of any Award any and all
applicable taxes required by law.
8. RIGHTS OF RECIPIENTS. No Recipient shall be entitled to any rights
under this Program prior to the date of payment of any Award. Nothing
in this Program shall limit the right of the Company to terminate the
employment of any Recipient or confer upon any Recipient any right to
continue in the employ of the Company.
9. DISCRETION OF COMMITTEE. The Committee shall have the discretion to
administer this Program, to establish rules, and to interpret its
provisions, consistent with its purposes. The Committee may accelerate
the achievement of Performance Goals, pay a pro-rata portion of any
Award prior to the end of a Performance Period or make other
adjustments as it deems appropriate, which need not be uniform for all
Recipients.
<PAGE>
10. AMENDMENTAND TERMINATION. The Committee and the Board reserve the
right: (a) to amend this Program at any time; (b) to cancel any
Performance Goal and any Award associated therewith at any time prior
to the end of the Performance Period; (c) to discontinue the
establishment of future Performance Periods and Awards; (d) to modify
the class of eligible Recipients for future Awards, and (e) to
terminate the Program, in each event without further obligation to any
Recipient.
11. EFFECTIVE DATE. This Program is established by the Compensation
Committee at its meeting held on February 26, 2002, and is effective as
of November 1, 2001.
THE VALSPAR CORPORATION
By: /s/Rolf Engh
---------------------
Its: Senior Vice President
---------------------
<PAGE>
EXHIBIT A
PERFORMANCE PERIODS AND PERFORMANCE GOAL RANGE
UNDER THE KEY EMPLOYEE LONG TERM INCENTIVE PROGRAM
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
PERFORMANCE PERIOD EARNINGS PER SHARE MINIMUM MAXIMUM
(FISCAL YEARS) PERFORMANCE GOAL EARNINGS PER SHARE EARNINGS PER SHARE
PERFORMANCE GOAL PERFORMANCE GOAL
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
2002-2004 $7.90 $6.70 $9.10
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>10
<FILENAME>valspar030264_ex13.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
EXHIBIT 13
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
========================================================================================================================
FISCAL YEARS 2002 2001 2000
<S> <C> <C> <C>
OPERATING RESULTS Net Sales $ 2,126,853 $ 1,920,970 $ 1,483,320
Cost and Expenses
Cost of Sales 1,430,184 1,346,934 1,039,267
Operating Expense 447,064 391,184 281,318
Restructuring Charge -- 21,930 (1,200)
----------------------------------------------------------------------------------------------------
Income from Operations 249,605 160,922 163,935
Other (Income) Expense - Net 2,346 (2,787) 200
Interest Expense 48,711 72,559 21,989
----------------------------------------------------------------------------------------------------
Income Before Income Taxes 198,548 91,150 141,746
Net Income 120,121 51,500 86,466
Net Income as a Percent of Sales 5.6% 2.7% 5.8%
Return on Average Equity 17.3% 13.5%* 20.6%*
Per Common Share:
Net Income - Basic $ 2.41 $ 1.12 $ 2.02
Net Income - Diluted 2.34 1.10 2.00
Dividends Paid 0.56 0.54 0.52
Stockholders' Equity 14.71 13.23 10.30
========================================================================================================================
FINANCIAL POSITION Total Assets $ 2,419,552 $ 2,226,070 $ 1,125,030
Working Capital at Year-End 197,893 216,589 199,576
Property, Plant and Equipment, Net 402,475 411,179 298,747
Long-Term Debt, Excluding Current Portion 885,819 1,005,731 300,300
Stockholders' Equity 737,253 654,565 437,571
========================================================================================================================
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 44,698 $ 36,200 $ 32,425
Depreciation and Amortization Expense 51,143 73,050 45,238
Research and Development Expense 65,924 58,105 46,353
Total Cash Dividends $ 27,962 $ 24,856 $ 22,185
Average Diluted Common Shares Outstanding (000's) 51,370 46,658 43,196
Number of Stockholders 1,642 1,702 1,728
Number of Employees at Year-End 7,058 6,750 4,685
Market Price Range - Common Stock: High $ 49.91 $ 37.80 $ 43.31
Low 33.21 24.45 19.75
========================================================================================================================
</TABLE>
Reference is made to the Notes to Consolidated Financial Statements for a
summary of accounting policies and additional information. Per share data has
been adjusted to reflect 2-for-1 stock splits effective in March 1992 and March
1997. The number of stockholders is based on recordholders at year-end.
* Excludes impact of restructuring and non-recurring charges in 1999, 2000 and
2001.
STOCK INFORMATION Stock Traded on the New York Stock Exchange
FOR THE FISCAL YEAR 2002 2001
================================================================================
Closing Market Price (high/low): First Quarter 41.90-33.21 33.60-24.45
Second Quarter 47.45-39.91 33.78-26.48
Third Quarter 49.91-35.55 36.91-30.15
Fourth Quarter 42.15-36.39 37.80-29.90
================================================================================
VALSPAR ANNUAL REPORT 2002 6
<PAGE>
[WIDE TABLE CONTINUED FROM LAST PAGE]
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
=========================================================================================================================
FISCAL YEARS 1999 1998 1997
<S> <C> <C> <C>
OPERATING RESULTS Net Sales $ 1,387,677 $ 1,155,134 $ 1,017,271
Cost and Expenses
Cost of Sales 960,395 803,240 698,474
Operating Expense 273,925 230,152 206,834
Restructuring Charge 8,346 -- --
-----------------------------------------------------------------------------------------------------
Income from Operations 145,011 121,742 111,963
Other (Income) Expense - Net (9,164) (7,753) (2,508)
Interest Expense 19,089 10,707 5,294
-----------------------------------------------------------------------------------------------------
Income Before Income Taxes 135,086 118,788 109,177
Net Income 82,142 72,130 65,877
Net Income as a Percent of Sales 5.9% 6.2% 6.5%
Return on Average Equity 23.8%* 22.7% 24.0%
Per Common Share:
Net Income - Basic $ 1.90 $ 1.66 $ 1.51
Net Income - Diluted 1.87 1.63 1.49
Dividends Paid 0.46 0.42 0.36
Stockholders' Equity 9.16 7.84 6.76
=========================================================================================================================
FINANCIAL POSITION Total Assets $ 1,110,720 $ 801,680 $ 615,470
Working Capital at Year-End 140,216 158,085 97,427
Property, Plant and Equipment, Net 312,133 233,482 185,748
Long-Term Debt, Excluding Current Portion 298,874 164,768 35,844
Stockholders' Equity 393,756 340,188 295,065
=========================================================================================================================
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 31,400 $ 42,833 $ 48,131
Depreciation and Amortization Expense 39,800 30,742 25,771
Research and Development Expense 44,091 39,555 39,099
Total Cash Dividends $ 19,785 $ 18,575 $ 15,741
Average Diluted Common Shares Outstanding (000's) 43,836 44,320 44,233
Number of Stockholders 1,818 1,815 1,830
Number of Employees at Year-End 4,482 3,833 3,205
Market Price Range - Common Stock: High $ 39.69 $ 42.13 $ 32.94
Low 28.00 25.75 24.00
========================================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
========================================================================================================================
FISCAL YEARS 1996 1995 1994
<S> <C> <C> <C>
OPERATING RESULTS Net Sales $ 859,799 $ 790,175 $ 795,275
Cost and Expenses
Cost of Sales 594,935 561,170 569,063
Operating Expense 169,873 146,344 146,683
Restructuring Charge -- -- --
----------------------------------------------------------------------------------------------------
Income from Operations 94,991 82,661 79,529
Other (Income) Expense - Net (1,081) (763) 631
Interest Expense 3,029 4,216 2,504
----------------------------------------------------------------------------------------------------
Income Before Income Taxes 93,043 79,208 76,394
Net Income 55,893 47,520 45,799
Net Income as a Percent of Sales 6.5% 6.0% 5.8%
Return on Average Equity 24.0% 24.4% 24.4%
Per Common Share:
Net Income - Basic $ 1.28 $ 1.09 $ 1.04
Net Income - Diluted 1.26 1.08 1.04
Dividends Paid 0.33 0.30 0.26
Stockholders' Equity 5.78 4.83 3.99
========================================================================================================================
FINANCIAL POSITION Total Assets $ 486,440 $ 398,199 $ 367,608
Working Capital at Year-End 96,130 90,995 87,887
Property, Plant and Equipment, Net 153,819 130,404 107,956
Long-Term Debt, Excluding Current Portion 31,948 21,658 35,343
Stockholders' Equity 253,703 212,115 176,712
========================================================================================================================
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 25,376 $ 38,982 $ 31,817
Depreciation and Amortization Expense 22,262 20,318 19,134
Research and Development Expense 32,616 27,746 27,430
Total Cash Dividends $ 14,575 $ 13,121 $ 11,252
Average Diluted Common Shares Outstanding (000's) 44,403 44,183 44,326
Number of Stockholders 1,783 1,864 1,902
Number of Employees at Year-End 2,855 2,542 2,585
Market Price Range - Common Stock: High $ 25.50 $ 20.94 $ 22.88
Low 19.13 15.25 16.38
========================================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
====================================================================================================
FISCAL YEARS 1993 1992
<S> <C> <C>
OPERATING RESULTS Net Sales $ 700,897 $ 683,485
Cost and Expenses
Cost of Sales 501,135 492,092
Operating Expense 129,997 131,232
Restructuring Charge -- --
--------------------------------------------------------------------------------
Income from Operations 69,765 60,161
Other (Income) Expense - Net 2,036 360
Interest Expense 1,645 2,932
--------------------------------------------------------------------------------
Income Before Income Taxes 66,084 56,869
Net Income 40,156 34,418
Net Income as a Percent of Sales 5.7% 5.0%
Return on Average Equity 21.8% 21.7%
Per Common Share:
Net Income - Basic $ 0.92 $ 0.79
Net Income - Diluted 0.91 0.79
Dividends Paid 0.22 0.18
Stockholders' Equity 4.51 3.92
====================================================================================================
FINANCIAL POSITION Total Assets $ 340,479 $ 321,618
Working Capital at Year-End 85,741 57,500
Property, Plant and Equipment, Net 103,916 101,005
Long-Term Debt, Excluding Current Portion 7,890 10,684
Stockholders' Equity 198,826 169,377
====================================================================================================
OTHER STATISTICS Property, Plant and Equipment Expenditures $ 17,213 $ 19,581
Depreciation and Amortization Expense 20,648 19,793
Research and Development Expense 24,955 24,802
Total Cash Dividends $ 9,471 $ 7,843
Average Diluted Common Shares Outstanding (000's) 44,062 43,946
Number of Stockholders 1,866 1,863
Number of Employees at Year-End 2,577 2,482
Market Price Range - Common Stock: High $ 20.75 $ 18.19
Low 15.19 11.28
====================================================================================================
</TABLE>
DIVIDENDS
FOR THE FISCAL YEAR 2002 2001
================================================================================
Per Share Dividends: First Quarter $ 0.14 $ 0.135
Second Quarter 0.14 0.135
Third Quarter 0.14 0.135
Fourth Quarter 0.14 0.135
================================================================================
$ 0.56 $ 0.54
7 VALSPAR ANNUAL REPORT 2002
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of financial condition and results of operations is
affected by the acquisition and divestiture activity during the reporting
period:
o 2002 - Effective March 2002, the Company purchased from its joint venture
partner the remaining 20% interest in Dyflex B.V., a resin manufacturer in
the Netherlands. In December 2001, the Valspar Renner joint venture acquired
a plant from Renner Herrmann, S.A. (a Brazilian company), and in January
2002, the Company acquired the remaining 50% interest in the Valspar Renner
joint venture. Effective November 30, 2001, the Company acquired the coil,
spray-applied door, and rigid packaging coatings businesses of Technical
Coatings Company, a subsidiary of Benjamin Moore & Co.
o 2001 - In December 2000, the Company acquired Lilly Industries, Inc., the
Company's largest acquisition to date. Total consideration paid was
approximately $1,036 million, including the assumption of debt of
approximately $218 million. The Company completed the sale of its existing
Mirror Coatings business as a condition of regulatory approval for the Lilly
Industries acquisition. In July 2001, the Company acquired the Packaging
Coatings business of Coates Brothers in Singapore, Malaysia, Indonesia and
Thailand. In November 2000, the Company acquired the 49% interest in The
Valspar (Mexico) Corporation, S.A. de C.V. held by its joint venture
partner.
o 2000 - In October 2000, the Company combined its two joint ventures in South
Africa so that the Company now has a majority position in a joint venture
with Plascon (Pty) Limited for a combined Packaging Coatings business in
South Africa.
The acquisitions were accounted for as purchases and are discussed in detail in
Note 2 to the Consolidated Financial Statements.
OPERATIONS 2002 VS. 2001
Net sales increased 10.7% to $2,126,853,000 in 2002 from $1,920,970,000 in 2001.
Excluding the impact of acquisitions and divestitures during the year, net sales
increased approximately 5%, primarily driven by volume increases in the
Architectural, Automotive, and Specialty (AAS) Coatings and Packaging Coatings
product lines.
The gross profit margin increased to 32.8% in 2002 from 29.9% in 2001. Excluding
the impact of $17,370,000 of inventory write-down charges related to the
September 2001 restructuring plan, the 2001 gross profit margin was 30.8%. The
higher margin in 2002 was attributable to lower raw material costs and continued
benefits from manufacturing integration.
Operating expenses (research and development, selling and administrative,
excluding $21,930,000 of restructuring in 2001) increased 14.3% to $447,064,000
(21.0% of net sales) in 2002 compared to $391,184,000 (20.4% of net sales) in
2001. Operating expenses as a percentage of net sales for 2002 increased 1.9
percentage points over 2001 after adjusting 2001 for the benefit of early
adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," which decreased 2001 operating expenses by
$25,080,000. See Note 8 to the Consolidated Financial Statements for detail of
Statement 142. This increase in operating expenses was primarily attributable to
variable incentive compensation, increased bad debt accruals and the investment
in Far East infrastructure for growth in the Industrial Coatings product line.
Other (income)/expense increased to $2,346,000 in 2002 from ($2,787,000) in
2001. The 2002 expense was primarily driven by foreign exchange losses.
The 2001 income was driven by the gains on the divestiture of the Company's
Mirror Coatings business and sale of certain assets.
Interest expense decreased to $48,711,000 in 2002 from $72,559,000 in 2001 due
to lower debt levels and reduced interest rates as compared to the previous
year. In April 2002, the Company completed the issuance of $350 million
five-year bonds at a 6% coupon rate. Net proceeds were used to reduce floating
rate bank borrowings.
The effective tax rate decreased from 43.5% to 39.5% resulting from the
reduction of non-deductible goodwill amortization following the adoption of
Statement 142.
Net income for the full year was $120,121,000 or $2.34 per diluted share. On a
comparable year over year basis (adjusted for adoption of Statement 142,
excluding restructuring and higher shares outstanding due to the April 2001
equity offering), diluted earnings per share increased 25%.
OPERATIONS 2001 VS. 2000
Net sales increased 29.5% to $1,920,970,000 in 2001 from $1,483,320,000 in 2000.
Excluding the impact of acquisitions and divestitures during the year, sales
decreased approximately 1%, primarily driven by volume decreases in the
Industrial Coatings product line offset by increased volume in the AAS product
line.
The gross profit margin remained constant at 29.9% in 2001 and 2000. Included in
cost of sales are charges of $17,370,000 incurred to account for the write-down
of inventory resulting from new account capture and other assets related to the
$39,300,000 in aggregate pre-tax charges from a restructuring plan announced in
September 2001. Excluding the impact of the write-down, the gross profit margin
increased to 30.8% in 2001 due to successful raw material price reductions with
added Lilly volume.
Operating expenses (research and development, selling and administrative,
excluding the impact of restructuring) increased 39.1% to $391,184,000 (20.4% of
net sales) in 2001 compared to $281,318,000 (19.0% of net sales) in 2000.
Excluding the impact of acquisitions and divestitures, operating expenses
remained constant. As part of the restructuring plan in the fourth quarter of
2001, the Company recorded a $21,930,000 restructuring charge to eliminate
redundant facilities and functions resulting from the Lilly acquisition in order
to accelerate performance improvement. See Note 3 to the Consolidated Financial
Statements for detail of the restructuring.
Other (income)/expense increased to ($2,787,000) in 2001 from $200,000 in 2000.
The 2001 income was driven by the gains on the divestiture of the Company's
Mirror Coatings business and sale of certain assets.
Interest expense increased to $72,559,000 in 2001 from $21,989,000 in 2000 due
to higher debt levels resulting from the Lilly acquisition.
Net income for the full year was $51,500,000 or $1.10 per diluted share.
Excluding the impact of restructuring and other non-recurring charges, net
income for the full year was $73,704,000 or $1.58 per diluted share. A weak
economy, rising raw material prices and significantly higher interest and
amortization expense negatively impacted the Company's financial performance in
2001. However, demand in the AAS Coatings product line remained strong and
Packaging Coatings sales were stable.
VALSPAR ANNUAL REPORT 2002 8
<PAGE>
FINANCIAL CONDITION
Cash provided by operating activities was $215,242,000 in 2002 compared with
$197,609,000 in 2001 and $93,338,000 in 2000. The cash provided by operating
activities and current cash balances was used to fund $44,698,000 in capital
expenditures, $27,962,000 in dividend payments, $22,870,000 in acquisition
investments and $136,155,000 in reduction in debt. The reduction in debt was
offset by $14,736,000 due to non-cash items.
Accounts receivable increased $19,941,000 due to increased sales primarily in
the AAS product line. Inventories and other assets increased $21,658,000 due to
the increase in sales volume, a higher level of merchandising aids to support
continued growth in the AAS product line, and a higher level of prepaid
underwriting expenses resulting from the issuance of senior notes in April 2002.
Accounts payable and accrued liabilities increased $68,052,000, primarily due to
additional variable incentive compensation accruals and timing of accounts
payable and interest payments.
Capital expenditures for property, plant and equipment were $44,698,000 in 2002,
compared with $36,200,000 in 2001 and $32,425,000 in 2000. The Company
anticipates capital spending in fiscal 2003 to be approximately $50,000,000.
The ratio of total debt to capital decreased to 55.7% at the end of 2002
compared to 61.6% in 2001. Average debt outstanding during 2002 was
$1,008,522,000 at a weighted average interest rate of 4.83% versus
$1,118,086,000 at 6.49% last year, decreasing the current year's interest
expense to $48,711,000 from $72,559,000 in the prior year.
Under various agreements, the Company is obligated to make future cash payments
in fixed amounts. These include payments under the multi-currency credit
facilities, senior notes, industrial bonds, capital lease obligations and rent
payments under non-cancelable operating leases with initial or remaining terms
in excess of one year.
The following table summarizes the Company's fixed cash obligations as of
October 25, 2002 for the fiscal years ending in October:
<TABLE>
<CAPTION>
2008 and
(Dollars in thousands) 2003 2004 2005 2006 2007 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notes to Banks -- -- 417,945 -- -- 2,579 420,524
Senior Notes -- -- -- -- 350,000 100,000 450,000
Industrial Development Bonds 166 176 182 163 169 14,031 14,887
Capital Leases 382 398 -- -- -- 176 956
Operating Leases 15,253 12,644 7,475 1,478 1,063 1,953 39,866
- -----------------------------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations 15,801 13,218 425,602 1,641 351,232 118,739 926,233
=============================================================================================================================
</TABLE>
At October 25, 2002, the Company had unused lines of credit available from banks
of $643,983,000.
Common stock dividends of $27,962,000 in 2002 represented a 12% increase over
2001. The annual dividend was increased to $0.56 per share from $0.54 per share
in 2001 with the payment at 54% of the prior year earnings. Excluding the impact
of restructuring, the payout was 38% of the prior year earnings, slightly above
the Company's target payout rate of approximately 25%.
The Company has continuing authorization to purchase shares of its common stock
for treasury at management's discretion for general corporate purposes. There
were no purchases in 2002 or 2001. Purchases under this program were 661,000
shares in 2000.
The Company is involved in various claims relating to environmental and waste
disposal matters at a number of current and former plant sites. The Company
engages or participates in remedial and other environmental compliance
activities at certain of these sites. At other sites, the Company has been named
as a potentially responsible party (PRP) under federal and state environmental
laws for the remediation of hazardous waste. The Company's management reviews
each individual site, considering the number of parties involved, the level of
potential liability or contribution of the Company relative to the other
parties, the nature and magnitude of the wastes involved, the method and extent
of remediation, the potential insurance coverage, the estimated legal and
consulting expense with respect to each site, and the time period over which any
costs would likely be incurred. Based on the above analysis, management
estimates the remediation or other clean-up costs and related claims for each
site. The estimates are based in part on discussions with other PRPs,
governmental agencies and engineering firms.
The Company accrues appropriate reserves for potential environmental
liabilities, which are continually reviewed and adjusted as additional
information becomes available. While uncertainties exist with respect to the
amounts and timing of the Company's ultimate environmental liabilities,
management believes that such liabilities, individually and in the aggregate,
will not have a material adverse effect on the Company's financial condition or
results of operations.
The Company, along with other companies, is a defendant in several legal
proceedings and claims brought against companies who are alleged to have
manufactured and sold paint containing lead pigment. The Company believes that
the litigation is without merit and is vigorously defending these matters. It is
possible that additional lawsuits or claims could be brought against the
Company. At this time, management cannot estimate the scope or amount of
potential costs or liabilities relating to these matters. However, based on the
outcome of such matters to date, and other factors, management does not believe
that the costs and liabilities of such matters will have a material adverse
effect on the Company's financial condition or results of operations.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's Consolidated Financial Statements, which
have been prepared in accordance with generally accepted accounting principles
in the United States (GAAP). The preparation of these financial statements
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and related disclosure
of any contingent assets and liabilities at the date of the financial
statements. The Company regularly reviews its estimates and assumptions, which
are based on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions, estimates or conditions.
9 VALSPAR ANNUAL REPORT 2002
<PAGE>
The Company believes the following critical accounting policies are affected by
significant judgments and estimates used in the preparation of its consolidated
financial statements:
REVENUE RECOGNITION
Other than long-term warranty programs, revenue from sales is recognized upon
product shipment and passage of title to the customer. Discounts provided to
customers at the point of sale are recognized as a reduction in sales as the
products are sold. For long-term warranty programs, revenue is recognized in
accordance with GAAP under the deferral method. Under this method revenue is
recognized based on the ratio of costs incurred, which includes direct program
costs and claims expense, to estimated total costs at program completion. This
method is based on historical claim data determined on an actuarial basis.
Adjustments in estimated costs are reflected in earnings in the current period.
Anticipated losses on programs in progress are charged to earnings when
identified.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company estimates the allowance for doubtful accounts by analyzing accounts
receivable by age and applying the historical write-off over the past five year
period. Accounts are written off sooner in the event of bankruptcy or other
circumstances that make further collection unlikely. When it is deemed probable
that a customer account is uncollectible, that balance is written off against
the existing allowance.
SUPPLIER AND CUSTOMER REBATES
The Company records supplier and customer rebates as a component of cost of
goods sold or a reduction to revenue, respectively, as they are earned, in
accordance with the underlying agreement.
VALUATION OF LONG-LIVED, INTANGIBLE ASSETS AND GOODWILL
The Company records the excess of purchase price over the fair value of net
tangible assets of acquired companies as goodwill or other intangible assets.
Effective October 27, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets." Statement
142 prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. Statement 142 also requires that companies test goodwill and
assets with indefinite lives for impairment annually, and an impairment charge
is recognized only when the calculated fair value of a reporting unit is less
than its carrying amount.
The Company periodically reviews its long-lived assets and finite lived
intangible assets for impairment and assesses whether significant events,
changes in business circumstances or economic trends indicate that the carrying
value of the assets may not be recoverable. An impairment loss is recognized
when the carrying amount of an asset exceeds the anticipated future cash flows
expected to result from use of the asset and its eventual disposal.
CONTINGENT LIABILITIES
The Company is subject to environmental remediation, pending litigation and
asserted claims with respect to matters arising in the ordinary course of
business. Liabilities and costs associated with these matters require estimates
of future costs and judgments based on the professional knowledge and experience
of management and its legal counsel. When estimates of the Company's exposure
can be reasonably estimated and are probable in outcome, amounts are recorded as
charges to earnings. The ultimate resolution of any such exposure to the Company
may differ due to subsequent developments.
PENSION OBLIGATIONS
The Company sponsors several defined benefit plans for certain hourly, salaried
and foreign employees. The Company accounts for its defined benefit pension
plans in accordance with GAAP, which requires the amount recognized in financial
statements be determined on an actuarial basis. To accomplish this, extensive
use is made of assumptions about inflation, investment returns, mortality,
turnover, and discount rates. A change in these assumptions could cause actual
results to differ from those reported.
WORKERS' COMPENSATION AND GENERAL PRODUCT LIABILITY
The Company is insured for workers' compensation, general liability, property,
and automotive liability losses subject to per occurrence deductibles and
aggregate annual liability limitations. The Company is self-insured for health
care claims for eligible participating employees. The liability for claims
incurred but not reported is determined on an actuarial basis.
ACCOUNTING FOR INCOME TAXES
The Company uses judgment in determining the provision for income taxes and
deferred tax assets and liabilities. This process involves estimating actual
current tax exposure in each of the Company's legal entities along with
assessing temporary differences resulting from differing treatment of items for
tax and book accounting purposes. The Company considers the likelihood that the
deferred tax assets would not be recoverable from future taxable income and
would record a valuation allowance in any period in which such a determination
is made.
MARKET RISK
The Company's foreign sales and results of operations are subject to the impact
of foreign currency fluctuations. The Company has not hedged its exposure to
translation gains and losses; however, it has reduced its exposure by borrowing
funds in local currencies. A 10% adverse change in foreign currency rates would
not have a material effect on the Company's results of operations or financial
position.
The Company is also subject to interest rate risk. At October 25, 2002,
approximately 40% of the Company's total debt consisted of floating rate debt
after taking into account interest rate swaps entered into during the second
quarter of 2002. If interest rates were to increase 10% from the rates in effect
on October 25, 2002, assuming no change in debt balances, the additional
interest expense would be approximately $1.5 million higher on a pre-tax basis
during 2003.
FORWARD-LOOKING STATEMENTS
This discussion contains certain "forward-looking" statements. These
forward-looking statements are based on management's expectations and beliefs
concerning future events. Forward-looking statements are necessarily subject to
risks, uncertainties and other factors, many of which are outside the control of
the Company that could cause actual results to differ materially from such
statements. These uncertainties and other factors include dependence of internal
earnings growth on economic conditions and growth in the domestic and
international coatings industry; risks related to any future significant
acquistions, including risks of adverse changes in the results of acquired
businesses, risks of disruptions in business resulting from the integration
process and higher interest costs resulting from further borrowing for any such
acquisitions; our reliance on the efforts of vendors, government agencies,
utilities, and other third parties to achieve adequate compliance and avoid
disruption of our business; changes in the Company's relationships with
customers and suppliers; unusual weather conditions that might adversely affect
sales; changes in raw materials pricing and availability; changes in
governmental regulation, including more stringent environmental, health, and
safety regulations; the nature, cost, and outcome of pending and future
litigation and other legal proceedings; the outbreak of war and other
significant national and international events; and other risks and
uncertainties. The foregoing list is not exhaustive, and the Company disclaims
any obligation to subsequently revise any forward-looking statements to reflect
events or circumstances after the date of such statements.
VALSPAR ANNUAL REPORT 2002 10
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 25, OCTOBER 26,
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets Cash and cash equivalents $ 22,715 $ 20,139
-----------------------------------------------------------------------------
Accounts and notes receivable, less
allowances for doubtful accounts
(2002 - $17,013; 2001 - $10,212) 368,134 341,383
-----------------------------------------------------------------------------
Inventories 200,645 185,565
-----------------------------------------------------------------------------
Deferred income taxes 30,498 40,547
-----------------------------------------------------------------------------
Prepaid expenses and other accounts 79,796 73,860
=============================================================================
Total Current Assets 701,788 661,494
-----------------------------------------------------------------------------
Goodwill, net 938,759 1,056,628
-----------------------------------------------------------------------------
Intangibles, net 293,208 30,212
-----------------------------------------------------------------------------
Other Assets 68,333 66,557
-----------------------------------------------------------------------------
Long-Term Deferred Income Tax 14,989 --
-----------------------------------------------------------------------------
Property, Plant and Equipment Land 33,690 35,905
-----------------------------------------------------------------------------
Buildings 209,113 144,158
-----------------------------------------------------------------------------
Machinery and equipment 409,361 520,935
=============================================================================
652,164 700,998
-----------------------------------------------------------------------------
Less accumulated depreciation 249,689 289,819
=============================================================================
Net Property, Plant and Equipment 402,475 411,179
=============================================================================
Total Assets $ 2,419,552 $ 2,226,070
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Notes payable to banks $ 40,031 $ 41,600
-----------------------------------------------------------------------------
Trade accounts payable 197,047 174,844
-----------------------------------------------------------------------------
Income taxes 20,998 23,328
-----------------------------------------------------------------------------
Accrued liabilities 245,271 204,647
-----------------------------------------------------------------------------
Current portion of long-term debt 548 486
-----------------------------------------------------------------------------
Total Current Liabilities 503,895 444,905
-----------------------------------------------------------------------------
Long-Term Debt, net of Current Portion 885,819 1,005,731
-----------------------------------------------------------------------------
Deferred Income Taxes 180,592 60,012
-----------------------------------------------------------------------------
Deferred Liabilities 111,993 60,857
-----------------------------------------------------------------------------
Total Liabilities 1,682,299 1,571,505
-----------------------------------------------------------------------------
Stockholders' Equity Common Stock (par value $.50 per share;
shares authorized 120,000,000; shares issued,
including shares in treasury, 60,221,312) 30,110 30,110
-----------------------------------------------------------------------------
Additional paid-in capital 230,163 216,756
-----------------------------------------------------------------------------
Retained earnings 614,964 522,805
-----------------------------------------------------------------------------
Other (29,919) (1,551)
=============================================================================
845,318 768,120
Less cost of common stock in treasury
(2002 - 10,117,299 shares;
2001 - 10,739,685 shares) 108,065 113,555
=============================================================================
Total Stockholders' Equity 737,253 654,565
=============================================================================
Total Liabilities and Stockholders' Equity $ 2,419,552 $ 2,226,070
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
11 VALSPAR ANNUAL REPORT 2002
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 25, OCTOBER 26, OCTOBER 27,
FOR THE YEAR ENDED 2002 2001 2000
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 2,126,853 $ 1,920,970 $ 1,483,320
- -----------------------------------------------------------------------------------------
COST AND EXPENSES:
- -----------------------------------------------------------------------------------------
Cost of sales 1,430,184 1,346,934 1,039,267
- -----------------------------------------------------------------------------------------
Research and development 65,924 58,105 46,353
- -----------------------------------------------------------------------------------------
Selling and administrative 376,277 303,796 224,290
- -----------------------------------------------------------------------------------------
Amortization expense 4,863 29,283 10,675
- -----------------------------------------------------------------------------------------
Restructuring -- 21,930 (1,200)
- -----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 249,605 160,922 163,935
- -----------------------------------------------------------------------------------------
Other Expense/(Income), net 2,346 (2,787) 200
- -----------------------------------------------------------------------------------------
Interest expense 48,711 72,559 21,989
- -----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 198,548 91,150 141,746
- -----------------------------------------------------------------------------------------
Income taxes 78,427 39,650 55,280
- -----------------------------------------------------------------------------------------
NET INCOME $ 120,121 $ 51,500 $ 86,466
- -----------------------------------------------------------------------------------------
Net Income Per Common Share - Basic $ 2.41 $ 1.12 $ 2.02
- -----------------------------------------------------------------------------------------
Net Income Per Common Share - Diluted $ 2.34 $ 1.10 $ 2.00
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
VALSPAR ANNUAL REPORT 2002 12
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS OTHER STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE OCTOBER 29, 1999 53,321,312 $ 26,660 $ 28,896 $ 429,397 $ 1,997 $ 93,194
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 84,893 shares -- -- 1,101 -- -- (840)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of 661,000 shares of
common stock for treasury -- -- -- -- -- 21,124
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 86,466 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation -- -- -- -- (1,306) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 86,466 (1,306) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock
- - $.52 per share -- -- -- (22,185) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Other -- -- 4,270 (2,818) (997) 432
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 27, 2000 53,321,312 $ 26,660 $ 34,267 $ 490,860 $ (306) $ 113,910
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock options
exercised of 141,578 shares -- -- 918 -- -- (1,225)
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock issuance and
sale of 6,900,000 shares 6,900,000 3,450 181,239 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 51,500 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation -- -- -- -- (1,245) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 51,500 (1,245) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common
stock - $.54 per share -- -- -- (24,856) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Other -- -- 332 5,301 -- 870
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 26, 2001 60,221,312 $ 30,110 $ 216,756 $ 522,805 $ (1,551) $ 113,555
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock options
exercised for 414,015 shares -- -- 6,395 -- -- (4,398)
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted stock granted
for 246,188 shares -- -- 7,227 -- -- (2,672)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 120,121 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation -- -- -- -- (7,045) --
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability
adjustment, net of tax of $13,790 -- -- -- -- (21,120) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized loss on financial
instruments, net of tax of $1,199 -- -- -- -- (1,837) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 120,121 (30,002) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common
- ------------------------------------------------------------------------------------------------------------------------------------
stock - $.56 per share -- -- -- (27,962) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Other -- -- (215) -- 1,634 1,580
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 25, 2002 60,221,312 $ 30,110 $ 230,163 $ 614,964 $ (29,919) $ 108,065
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
13 VALSPAR ANNUAL REPORT 2002
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
OCTOBER 25, OCTOBER 26, OCTOBER 27,
FOR THE YEAR ENDED 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net income $ 120,121 $ 51,500 $ 86,466
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
- ---------------------------------------------------------------------------------------------------------------------------------
Restructuring and non-recurring charge -- 39,300 (1,200)
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation 46,280 43,767 34,563
- ---------------------------------------------------------------------------------------------------------------------------------
Amortization 4,863 29,283 10,675
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 14,540 15,055 11,526
- ---------------------------------------------------------------------------------------------------------------------------------
Loss/(gain) on sales or abandonment
of property, plant and equipment 1,428 (3,512) --
- ---------------------------------------------------------------------------------------------------------------------------------
Gain on sales of investments -- (736) --
- ---------------------------------------------------------------------------------------------------------------------------------
Changes in certain assets and liabilities,
net of effects of acquired businesses:
Decrease (increase) in accounts and
notes receivable (19,941) 20,214 (17,100)
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease (increase) in inventories
and other assets (21,658) 10,108 (14,397)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in trade accounts
payable and accrued liabilities 68,052 (26,989) (8,074)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in income taxes payable (2,489) 8,293 (10,952)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in other deferred liabilities (2,049) 6,048 (792)
- ---------------------------------------------------------------------------------------------------------------------------------
Other 6,095 5,278 2,623
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 215,242 197,609 93,338
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES Purchases of property, plant and equipment (44,698) (36,200) (32,425)
- ---------------------------------------------------------------------------------------------------------------------------------
Acquired businesses, net of cash (22,870) (830,664) (3,935)
- ---------------------------------------------------------------------------------------------------------------------------------
Divested businesses/assets 8,226 22,430 --
- ---------------------------------------------------------------------------------------------------------------------------------
Other investments/advances to joint ventures -- -- (15,586)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (59,342) (844,434) (51,946)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES Net proceeds from (payments on) borrowings (136,155) 484,053 (12,278)
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of treasury stock 10,793 2,143 1,941
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from equity offering -- 184,689 --
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of shares of Common Stock for treasury -- -- (21,124)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends paid (27,962) (24,856) (22,185)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash provided by/(used in)
financing activities (153,324) 646,029 (53,646)
- ---------------------------------------------------------------------------------------------------------------------------------
(Decrease )/increase in cash and cash equivalents 2,576 (796) (12,254)
=================================================================================================================================
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 20,139 20,935 33,189
=================================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,715 $ 20,139 $ 20,935
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
VALSPAR ANNUAL REPORT 2002 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Valspar Corporation * Years Ended October 2002, 2001 and 2000
(Dollars in thousands except per share amounts)
NOTE 1 * SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR: The Company has a 4-4-5 accounting cycle with the fiscal year
ending on the Friday on or immediately preceding October 31. All years presented
include 52 weeks.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the parent company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation. Investments in
which the Company has a 20 to 50 percent interest and where the Company does not
have management control are accounted for using the equity method.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
REVENUE RECOGNITION: Other than long-term warranty programs, revenue from sales
is recognized upon product shipment and passage of title to the customer.
Revenue from long-term warranty programs is recognized based on the ratio of
costs incurred to estimated total costs at program completion, using historical
claim data. Adjustments in estimated costs are reflected in earnings in the
current period. Anticipated losses on programs in progress are charged to
earnings when identified.
CASH EQUIVALENTS: The Company considers all highly liquid instruments purchased
with an original maturity of less than three months to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. The
Company's domestic inventories are recorded on the last-in, first-out (LIFO)
method. The remaining inventories are recorded using the first-in, first-out
(FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Provision for depreciation of property is made by charges to operations at
rates calculated to amortize the cost of the property over its useful life
(twenty years for buildings; three to ten years for machinery and equipment)
primarily using the straight-line method.
INTANGIBLE AND LONG-LIVED ASSETS: Intangible assets, including goodwill, are
carried at cost. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Statement 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. Statement 142 requires these
assets be reviewed for impairment at least annually. Intangible assets with
finite lives will continue to be amortized over their estimated useful lives
using the straight line method (6 to 40 years). The Company reviews all other
long-lived assets for impairment in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets." Under Statement 144, impairment losses are recorded on
long-lived assets used in operations when events and circumstances indicate the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
STOCK OPTIONS: As permitted by Statement of Financial Accounting Standards No.
123, the Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting For Stock Issued to Employees" and its interpretations in
accounting for its stock options and other stock-based employee compensation
awards. Pro forma information regarding net income and earnings per share as
calculated under the fair value provisions of Statement 123 is disclosed in Note
9 to the financial statements.
FOREIGN CURRENCY: Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the balance
sheet date. Results of operations are translated using the average exchange
rates throughout the period. The effect of exchange rate fluctuations on
translation of assets and liabilities is recorded as a component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in other expense/(income), net.
NET INCOME PER SHARE: The following table reflects the components of common
shares outstanding for each of the three years ended October 25, 2002 in
accordance with Statement of Financial Accounting Standards No. 128:
2002 2001 2000
Weighted average
common shares
outstanding-basic 49,892,689 46,062,459 42,706,168
Dilutive effect of
stock options 1,477,720 595,296 489,599
- --------------------------------------------------------------------------------
Equivalent average
common shares
outstanding-diluted 51,370,409 46,657,755 43,195,767
================================================================================
Under the provisions of Statement 128, basic earnings per share are based on the
weighted average number of common shares outstanding during each year. In
computing diluted earnings per share, the number of common shares outstanding is
increased by common stock options with exercise prices lower than the average
market prices of common shares during each year and reduced by the number of
shares assumed to have been purchased with proceeds from the exercised options.
15 VALSPAR ANNUAL REPORT 2002
<PAGE>
Potential common shares of 53,687, 3,025,335 and 1,479,816 related to the
Company's outstanding stock options and restricted stock grants were excluded
from the computation of diluted earnings per share for 2002, 2001 and 2000,
respectively, as inclusion of these shares would have been antidilutive.
FINANCIAL INSTRUMENTS: All financial instruments are held for purposes other
than trading. The estimated fair values of the Company's financial instruments
approximate their carrying amounts in the consolidated balance sheet at October
25, 2002. See Note 7 to the Consolidated Financial Statements for additional
information.
COMPREHENSIVE INCOME: Comprehensive income consists of net income, foreign
currency translation adjustments, changes in the fair value of certain
derivative financial instruments designated and qualifying as cash flow hedges,
and minimum pension liability adjustments, and is presented in the Consolidated
Statements of Changes in Stockholders' Equity.
RECLASSIFICATION: Certain amounts in the 2001 financial statements have been
reclassified to conform to the 2002 presentation.
NOTE 2 * ACQUISITIONS AND DIVESTITURES
In March 2002, the Company purchased from its joint venture partner the
remaining 20% interest in Dyflex B.V., a resin manufacturer in the Netherlands.
The transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The pro forma results of operations for this
acquisition have not been presented as the impact on reported results is not
material.
In December 2001, the Valspar Renner joint venture acquired a plant from Renner
Herrmann S.A. (a Brazilian company), and in January 2002, the Company acquired
the remaining 50% interest in the Valspar Renner joint venture. Valspar Renner
supplies packaging coatings and metal decorating inks to the South American
market. The transaction was accounted for as a purchase. Accordingly, the net
assets and operating results have been included in the Company's financial
statements from the date of acquisition. The pro forma results of operations for
this acquisition have not been presented as the impact on reported results is
not material.
Effective November 30, 2001, the Company acquired the coil, spray-applied door,
and rigid packaging coatings businesses of Technical Coatings Co., a subsidiary
of Benjamin Moore and Co. Revenues for these businesses were $25 million in
2001. The transaction was accounted for as a purchase. Accordingly, the net
assets and operating results have been included in the Company's financial
statements from the date of acquisition. The pro forma results of operations for
this acquisition have not been presented as the impact on reported results is
not material.
Effective July 31, 2001, the Company acquired the Packaging Coatings business of
Coates Brothers in Singapore, Malaysia, Indonesia and Thailand. Revenues for
these businesses were $7 million in 2000. This acquisition significantly
strengthens the Company's presence in the Southeast Asian packaging coatings
market. The transaction was accounted for as a purchase. Accordingly, the net
assets and operating results have been included in the Company's financial
statements from the date of acquisition. The pro forma results of operations for
this acquisition have not been presented as the impact on reported results is
not material.
Effective December 20, 2000, the Company acquired all outstanding Class A and
Class B stock of Lilly Industries, Inc. for $31.75 per share in cash. Total
consideration paid was approximately $1,036 million, including the assumption of
debt of approximately $218 million. Lilly Industries was one of the five largest
industrial coatings and specialty chemicals manufacturers in North America, with
reported net sales of $656.2 million for the year ended November 30, 1999, and
$669.7 for the year ended November 30, 2000. Lilly Industries formulated,
manufactured and marketed industrial coatings and specialty chemicals to
original equipment manufacturers for products such as home and office furniture,
cabinets, appliances, building products, transportation, and agricultural and
construction equipment. The transaction was accounted for as a purchase.
Accordingly, the net assets and operating results have been included in the
Company's financial statements from the date of acquisition.
The following unaudited pro forma combined summary statement of income
information for the year ended October 26, 2001 was prepared in accordance with
Statement of Financial Accounting Standards No. 141 "Business Combinations" and
assumes the acquisition had occurred at the beginning of the period presented.
The following pro forma data reflect adjustments for interest expense and
excludes amortization of goodwill in accordance with Statement 142. The
unaudited pro forma financial information is provided for informational purposes
only and does not purport to be indicative of the future results of the Company.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED
OCTOBER 26, 2001
Net sales $ 2,018,468
Net income 68,292
Net income per share-basic 1.48
Net income per share-diluted 1.46
During the first quarter of fiscal 2001, the Company completed the sale of its
existing Mirror Coatings business as a condition of Federal Trade Commission
approval for the Lilly Industries acquisition. This product line had revenues of
approximately $12 million for the year ended October 27, 2000. The pro forma
results of operations for this divestiture have not been presented as the impact
on reported results is not material.
In November 2000, the Company acquired the 49% interest in The Valspar (Mexico)
Corporation, S.A. de C.V. held by its joint venture partner. The Valspar
(Mexico) Corporation has operations in Mexico City and Monterrey and
VALSPAR ANNUAL REPORT 2002 16
<PAGE>
produces Industrial and Packaging coatings. The transaction was accounted for as
a purchase. Accordingly, the net assets and operating results have been included
in the Company's financial statements from the date of acquisition. The pro
forma results of operations for this acquisition have not been presented as the
impact on reported results is not material.
In December 1997, as a part of the Coates acquisition, the Company acquired a
49% interest in a joint venture with Coates for packaging coatings in South
Africa. In February 1999, as a part of the Dexter acquisition, the Company
acquired Dexter's majority position in a joint venture with Plascon (Pty)
Limited, a South African company, for packaging coatings in South Africa. As of
October 2000, the Company acquired Coates' 51% interest in the Valspar/Coates
joint venture and reorganized the businesses of both South African joint
ventures so that Valspar now has a majority position in a joint venture with
Plascon for a combined packaging coatings business in South Africa. The
transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The pro forma results of operations for this
acquisition have not been presented as the impact on reported results is not
material.
NOTE 3 * RESTRUCTURING
In September 2001, the Company's Board of Directors approved and the Company
initiated actions to eliminate redundant facilities and functions resulting from
the Lilly Industries acquisition in order to accelerate performance improvement.
These actions resulted in the Company recording aggregate pre-tax charges of
$39,300. The charges include $21,930 classified as restructuring and $17,370 of
inventory and other asset write-downs classified in cost of sales. Of the
$39,300 total, $8,384 related to employee termination benefits, $2,049 related
to exit and termination costs, $11,497 related to recording assets to be
disposed of at fair value, and $17,370 related to inventory and other asset
write-downs. Through October 25, 2002, the Company has paid or incurred
substantially all of the $39,300 restructuring costs.
These plans contemplated a workforce reduction of worldwide headcount of 350 or
five percent. As of October 25, 2002, substantially all of the 350 terminations
have occurred and substantially all of the location closures/consolidations have
occurred.
During 1999, the Company initiated actions to eliminate redundant facilities and
functions resulting from the acquired Dexter packaging coatings operations,
resulting in a pre-tax restructuring charge of $8,346. During 2000, accruals in
the amount of $1,200 were reversed related to lower than estimated costs.
NOTE 4 * INVENTORIES
The major classes of inventories consist of the following:
2002 2001
Manufactured products $ 123,274 $ 114,967
- --------------------------------------------------------------------------------
Raw Materials, supplies
and work-in-process 77,371 70,598
- --------------------------------------------------------------------------------
$ 200,645 $ 185,565
================================================================================
Inventories stated at cost determined by the last-in, first-out (LIFO) method
aggregate $129,341 at October 25, 2002 and $128,450 at October 26, 2001,
approximately $24,523 and $28,530 lower, respectively, than such costs
determined under the first-in, first-out (FIFO) method.
NOTE 5 * TRADE ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable include $41,082 and $24,459 of issued checks which had
not cleared the Company's bank accounts as of October 25, 2002 and October 26,
2001, respectively.
Accrued liabilities include the following:
2002 2001
Employee compensation $ 73,038 $ 58,860
- --------------------------------------------------------------------------------
Uninsured loss reserves 43,941 43,343
- --------------------------------------------------------------------------------
Customer volume rebates 40,432 34,668
- --------------------------------------------------------------------------------
Contribution to employees'
retirement trusts 16,299 10,271
- --------------------------------------------------------------------------------
Restructuring 1,599 17,622
- --------------------------------------------------------------------------------
Interest 14,170 4,942
- --------------------------------------------------------------------------------
Advertising and Promotions 8,449 8,318
- --------------------------------------------------------------------------------
Other 47,343 26,623
- --------------------------------------------------------------------------------
Total $ 245,271 $ 204,647
================================================================================
17 VALSPAR ANNUAL REPORT 2002
<PAGE>
NOTE 6 * LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
2002 2001
Notes to banks
(2.525%-5.9667% at October 25, 2002) $ 420,524 $ 890,350
- --------------------------------------------------------------------------------
Senior Notes
(7.75% at October 25, 2002 payable
in December 2007) 100,000 100,000
- --------------------------------------------------------------------------------
Senior Notes
(6.00% at October 25, 2002 payable
in May 2007) 350,000 --
- --------------------------------------------------------------------------------
Industrial development bonds
(1.95-7.60% at October 25, 2002,
payable in 2015 and 2018) 14,887 14,824
- --------------------------------------------------------------------------------
Obligations under capital lease
(0.00%-8.25% at October 25, 2002) 956 1,043
- --------------------------------------------------------------------------------
$ 886,367 $ 1,006,217
Less current maturities (548) (486)
- --------------------------------------------------------------------------------
$ 885,819 $ 1,005,731
================================================================================
The Company has a five-year $1,000,000 unsecured committed revolving
multi-currency credit facility with a syndicate of banks maturing on November
17, 2005. Under this facility, the Company can borrow at optional interest rates
of prime or IBOR-based rates. Included in the $1 billion credit facility are
domestic notes to banks totaling $417,945 at October 25, 2002 and $887,750 at
October 26, 2001. The maturities of the remaining long-term debt are as follows:
2003 - $548; 2004 - $574; 2005 - $182; 2006 - $163; 2007 - $350,169 and $116,786
thereafter. The revolving credit loan facility contains covenants that require
the Company to maintain certain financial ratios. The Company is in compliance
with these covenants as of October 25, 2002.
Under other short-term bank lines of credit around the world, the Company may
borrow up to $104,538 on such terms as the Company and the banks may mutually
agree. These arrangements are reviewed periodically for renewal and
modification. Borrowings under these debt arrangements had an average annual
rate of 3.41% in 2002 and 6.37% in 2001.
The Company had unused lines of credit under the short-term bank lines and
revolving credit facility of $643,983 at October 25, 2002 and of $688,429 at
October 26, 2001.
On April 30, 2002, the Company issued $350,000 of unsecured Senior Notes bearing
interest at 6.00% and maturing in 2007. The Company is required to make
semi-annual interest payments on the Senior Notes.
As discussed in Note 7, the Company also entered into various interest-rate swap
agreements to modify the interest characteristics of the revolving
multi-currency credit facility and the Senior Notes so that the interest
associated with these debt instruments effectively becomes fixed or variable,
respectively.
Interest paid during 2002, 2001 and 2000 was $36,825, $67,660 and $22,369,
respectively.
NOTE 7 * FINANCIAL INSTRUMENTS
The Company's involvement with derivative financial instruments is limited to
managing well-defined interest rate and foreign currency exchange risks. Forward
foreign currency exchange contracts are used to hedge the impact of currency
fluctuations on certain inter-company transactions.
The Company also holds interest rate swaps used to manage the interest rate risk
associated with its borrowings and to manage the Company's mix of fixed and
variable rate debt. The interest rate swap contracts are reflected at fair value
in the consolidated balance sheets. Amounts to be paid or received under the
contracts are accrued as interest rates change and are recognized over the life
of the contracts as an adjustment to interest expense.
At October 25, 2002, the Company had interest rate swap contracts designated as
fair value hedges to pay fixed rates of interest and receive variable rates of
interest based on one-month and three-month LIBOR on $200,000 notional amount of
indebtedness. The $200,000 notional amount of outstanding contracts will mature
$100,000 during fiscal 2003 and $100,000 during fiscal 2004. At October 25,
2002, the Company had interest rate swap contracts designated as cash flow
hedges to pay floating rates of interest based on three-month LIBOR on $100,000
notional amount of indebtedness. The $100,000 notional amount of outstanding
contracts will mature during fiscal 2008. At October 26, 2001, the Company did
not have interest rate swap contracts of any kind. As the critical terms of the
interest rate swap and hedged debt match, there is an assumption of no
ineffectiveness for these hedges.
NOTE 8 * GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." Statement 141 requires that the purchase
method of accounting be used for all business combinations after June 30, 2001.
Statement 142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. Statement 142 requires these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives.
Effective October 27, 2001, the Company adopted Statement 142, which requires
goodwill and intangible assets with indefinite lives be tested for impairment at
the reporting unit level at adoption and at least annually thereafter. An
impairment charge is recognized only when the calculated fair value of a
reporting unit, including goodwill, is less than its carrying amount. In
accordance with Statement 142, the Company completed the required impairment
tests of goodwill and intangible assets with indefinite lives and determined the
fair value to be in excess of the carrying value of these assets.
VALSPAR ANNUAL REPORT 2002 18
<PAGE>
As required by Statement 142, the Company continues to amortize intangibles with
finite lives. Included in intangible assets are patents, trademarks, tradenames,
customer lists and technology.
A reconciliation of reported net income adjusted to reflect the adoption of
Statement 142 is provided below:
YEAR ENDED YEAR ENDED
OCTOBER 25, 2002 OCTOBER 26, 2001
Reported net income $ 120,121 $ 51,500
- --------------------------------------------------------------------------------
Add-back amortization of goodwill
and intangible assets with indefinite
useful lives, net of tax -- 18,819
- --------------------------------------------------------------------------------
Adjusted net income $ 120,121 $ 70,319
- --------------------------------------------------------------------------------
Reported basic earnings per share $ 2.41 $ 1.12
- --------------------------------------------------------------------------------
Add-back amortization of goodwill
and intangible assets with indefinite
useful lives -- $ 0.40
- --------------------------------------------------------------------------------
Adjusted basic earnings per share $ 2.41 $ 1.52
- --------------------------------------------------------------------------------
Reported diluted earnings per share $ 2.34 $ 1.10
================================================================================
Add-back amortization of goodwill
and intangible assets with indefinite
useful lives -- $ 0.40
- --------------------------------------------------------------------------------
Adjusted diluted earnings per share $ 2.34 $ 1.50
================================================================================
The changes in the carrying amount of goodwill and intangible assets for the
fiscal year ended October 25, 2002 are as follows:
BALANCE AS OF OCTOBER 26, 2001 $ 1,056,628
================================================================================
Goodwill acquired during the period 1,307
Currency translation 386
Reclassification due to final purchase price
allocation under Statement 141 (119,562)
================================================================================
BALANCE AS OF OCTOBER 25, 2002 $ 938,759
Information regarding the Company's other intangible assets are as follows:
CARRYING ACCUMULATED
AS OF OCTOBER 25, 2002 AMOUNT AMORTIZATION NET
- --------------------------------------------------------------------------------
Trademarks $ 55,591 $ (7,740) $ 47,851
Customer Lists 135,891 (9,908) 125,983
Technology 114,459 (2,697) 111,762
Other 10,897 (3,285) 7,612
- --------------------------------------------------------------------------------
$ 316,838 $ (23,630) $ 293,208
================================================================================
AS OF OCTOBER 26, 2001
- --------------------------------------------------------------------------------
Trademarks $ 8,272 $ (7,397) $ 875
Customer Lists 20,204 (5,253) 14,951
Technology 12,516 (4,058) 8,458
Other 7,987 (2,059) 5,928
- --------------------------------------------------------------------------------
$ 48,979 $ (18,767) $ 30,212
================================================================================
Amortization lives for intangible assets range from 6 to 40 years.
Total amortization expense was $4,863 in 2002 and in 2001 was $29,283, of which
$25,080 was goodwill amortization. Estimated amortization expense for each of
the five succeeding fiscal years based on intangibles assets as of October 25,
2002 is expected to be approximately $4,900 annually.
NOTE 9 * STOCK PLANS
Stock Options: Under the Company's Stock Option Plan, options for the purchase
of up to 8,000,000 shares of common stock may be granted to officers, employees,
and non-employee directors. Options are issued at market value at the date of
grant and are exercisable in full or in part over a prescribed period of time.
As permitted by Statement 123, the Company has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" for measurement and recognition of stock-based transactions
with employees. Accordingly, no compensation expense has been recorded for
options granted under the stock option plan as the exercise price equals or
exceeds the market price of the underlying stock on the date of grant. Had
compensation expense for the stock option plan been determined based on the fair
value at the date of grant, consistent with the provisions of Statement 123, the
Company's net income and earnings per share would have been reported as follows:
2002 2001 2000
Pro forma net income $ 111,555 $ 45,325 $ 79,406
Pro forma earnings per share:
Basic $ 2.24 $ 0.98 $ 1.86
Diluted 2.17 0.97 1.84
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2002 2001 2000
Expected dividend yield 1.5% 1.5% 1.5%
Expected stock price volatility 33.2% 29.8% 27.9%
Risk-free interest rate 2.9% 4.2% 5.5%
Expected life of options 6 years 6 years 6 years
19 VALSPAR ANNUAL REPORT 2002
<PAGE>
The weighted average fair value for options granted during 2002, 2001 and 2000
is $10.67, $11.05, and $10.83 per share, respectively. Stock option activity for
the three years ended October 25, 2002 is summarized as follows:
WEIGHTED
AVERAGE
SHARES OPTIONS EXERCISE
RESERVED OUTSTANDING PRICE
October 29, 1999 Balance 4,057,981 2,228,395 $ 26.49
Shares reserved -- -- --
Granted (1,543,690) 1,444,172 $ 33.32
Exercised -- (84,893) $ 22.86
Canceled 72,321 (68,192) $ 37.24
- --------------------------------------------------------------------------------
October 27, 2000 Balance 2,586,612 3,519,482 $ 29.47
Shares reserved 3,010,000 -- --
Granted (2,460,665) 2,428,825 32.16
Exercised -- (130,364) 20.94
Canceled 170,035 (163,554) 35.92
- --------------------------------------------------------------------------------
October 26, 2001 Balance 3,305,982 5,654,389 $ 30.64
Shares reserved -- -- --
Granted (1,262,272) 1,009,099 41.23
Exercised -- (414,015) 26.18
Canceled 63,505 (56,520) 33.97
- --------------------------------------------------------------------------------
October 25, 2002 2,107,215 6,192,953 32.63
================================================================================
Options outstanding at October 25, 2002 had an average remaining contractual
life of 7.50 years. Options exercisable of 3,434,117 at October 25, 2002,
2,395,331 at October 26, 2001, and 1,911,232 at October 27, 2000 had weighted
average exercise prices of $29.70, $26.32, and $23.20 respectively. The exercise
price for options outstanding as of October 25, 2002 range from $14.81 to
$44.76, with 2,183,308 shares outstanding in the $14.81 - $30.00 range and
4,009,645 shares outstanding in the $30.00 - $44.76 range.
EMPLOYEE STOCK OWNERSHIP PLANS: Under the Company's Employee Stock Ownership
Plans, substantially all of the Company's domestic employees are eligible to
participate and may contribute up to 20% of their eligible compensation (up to
8% for Highly Compensated Employees) subject to Section 401 and 415 limits. The
Company matches one-half of employee contributions, up to 3% of employees'
compensation. Based on the financial performance of the Company, there may be an
additional 50% match, up to 3%. The Company's contributions were $7,348, $4,328,
and $3,314, for 2002, 2001, and 2000, respectively.
KEY EMPLOYEE BONUS PLAN: In 1993, the Company established a Key Employee Bonus
Plan for certain employees. Under the Plan, participants can elect to convert
all or any portion of the cash bonus awarded under certain incentive bonus plans
into a grant of restricted stock receivable three years from the date of grant.
EXECUTIVE RETIREMENT PLANS: The Company has several qualified Supplemental
Executive Retirement Plans (SERPs) to provide designated executives with
retirement, death and disability benefits. Annual benefits under the SERPs are
based on years of service and individual compensation near retirement.
NOTE 10 * INCOME TAXES
Significant components of the provision for income taxes are as follows:
YEAR ENDED 2002 2001 2000
Current
Federal $ 39,296 $ 14,558 $ 32,312
State 2,709 (1,443) 3,412
Foreign 11,605 7,938 8,212
- --------------------------------------------------------------------------------
Total Current $ 53,610 $ 21,053 $ 43,936
================================================================================
Deferred
Federal $ 20,450 $ 15,302 $ 9,586
State 4,820 2,731 1,565
Foreign (453) 564 193
- --------------------------------------------------------------------------------
Total Deferred 24,817 18,597 11,344
================================================================================
Total Income Taxes $ 78,427 $ 39,650 $ 55,280
================================================================================
Significant components of the Company's deferred tax assets and liabilities are
as follows:
2002 2001 2000
Deferred tax assets:
Product liability accruals $ 4,209 $ 9,372 $ 2,508
Insurance accruals 3,457 3,392 3,418
Deferred compensation 10,193 12,526 10,566
Deferred Revenue 12,452 -- --
Workers' compensation
accruals 2,309 2,141 2,538
Employee compensation
accruals 4,873 2,693 1,931
Pension 15,195 (5,224) (3,553)
Other 22,871 31,769 20,974
- --------------------------------------------------------------------------------
Total deferred tax assets $ 75,559 $ 56,669 $ 38,382
================================================================================
Deferred tax liabilities:
Tax in excess of book
depreciation (44,149) (33,510) (24,445)
================================================================================
Other (166,515) (42,624) (17,839)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (210,664) (76,134) (42,284)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ (135,105) $ (19,465) $ (3,902)
================================================================================
A reconciliation of income tax computed at the U.S. federal statutory tax rate
to the effective income tax rate is as follows:
2002 2001 2000
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
Goodwill amortization -- 5.5% 0.5%
State income taxes, net of
Federal benefit 3.0% 0.8% 2.1%
Non-U.S. taxes (0.6%) 2.7% 0.7%
Other 2.1% (0.5%) 0.7%
- --------------------------------------------------------------------------------
39.5% 43.5% 39.0%
================================================================================
No provision has been made for U.S. federal income taxes on certain
undistributed earnings of foreign subsidiaries that the Company intends to
permanently invest or that may be remitted substantially tax-free. The total of
VALSPAR ANNUAL REPORT 2002 20
<PAGE>
undistributed earnings that would be subject to federal income tax if remitted
under existing law is approximately $97,561 at October 25, 2002. Determination
of the unrecognized deferred tax liability related to these earnings is not
practicable because of the complexities with its hypothetical calculation. Upon
distribution of these earnings, the Company will be subject to U.S. taxes and
withholding taxes payable to various foreign governments. A credit for foreign
taxes already paid would be available to reduce the U.S. tax liability.
Income taxes paid during 2002, 2001 and 2000 were $58,074, $21,292 and $51,669,
respectively.
NOTE 11 * LEASING ARRANGEMENTS
The Company has operating lease commitments outstanding at October 25, 2002, for
plant and warehouse equipment, office and warehouse space, and automobiles. The
leases have initial periods ranging from one to ten years, with minimum future
rental payments as follows:
MINIMUM LEASE PAYMENTS
2003 $ 15,253
2004 12,644
2005 7,475
2006 1,478
2007 1,063
2008 and beyond 1,953
======================================================
$ 39,866
Rent expense for operating leases was $17,761 in 2002, $12,408 in 2001 and
$6,426 in 2000.
NOTE 12 * LITIGATION
The Company is involved in a variety of legal actions relating to personal
injury, customer contracts, employment, trade practices, environmental and other
legal matters that arise in the normal course of business. While the Company is
unable to predict the ultimate outcome of these legal actions, it is the opinion
of management that the disposition of these matters will not have a material
adverse effect on the Company's consolidated financial statements taken as a
whole.
NOTE 13 * PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a Profit Sharing Plan for substantially all of its domestic
employees. Under the Plan, the Company makes a contribution based on return on
assets as defined in the Plan up to a maximum of 10% of the aggregate
compensation of eligible participants. Contributions to the Profit Sharing Plan
totaled $14,576, $9,264, and $10,657, for 2002, 2001, and 2000, respectively.
The Company also sponsors a number of defined benefit pension plans for certain
hourly, salaried and foreign employees. The benefits for these plans are
generally based on stated amounts for each year of service. The Company funds
the plans in amounts consistent with the limits of allowable tax deductions. The
Company assumed the liabilities and assets under the Lilly pension plan for
employees eligible as of the date of acquistion.
The cost of the pension benefits is as follows:
NET PERIODIC COST 2002 2001 2000
Service cost $ 1,869 $ 1,837 $ 1,185
Interest cost 9,266 7,861 2,328
Expected return on plan assets (12,461) (12,774) (3,818)
Amortization of transition asset obligation (322) (301) (91)
Amortization of prior service cost 918 817 343
Recognized actuarial gain 600 (409) (406)
- --------------------------------------------------------------------------------
Net-periodic benefit cost (130) (2,969) (459)
Settlement gain -- -- (787)
Net-periodic benefit cost
after settlement $ (130) $ (2,969) $ (1,246)
The plans' funded status is shown below, along with a description of how the
status changed during the past two years. The benefit obligation is the
projected benefit obligation--the actuarial present value, as of a date, of all
benefits attributed by the pension benefit formula to employee service rendered
prior to that date.
CHANGE IN BENEFIT OBLIGATION
2002 2001
Benefit obligation at beginning of year $ 143,008 $ 37,582
Service cost 1,869 1,837
Interest cost 9,266 7,861
Plan participants' contributions 99 125
Amendments 312 1,316
Actuarial (gain) loss 126 20,889
Acquisitions -- 79,211
Benefits paid (7,427) (5,813)
================================================================================
Benefit obligation end of year $ 147,253 $ 143,008
CHANGE IN PLAN ASSETS
2002 2001
Fair value of plan assets at beginning of year $ 134,031 $ 51,806
Actual return on plan assets (14,294) (6,955)
Employer contributions 501 628
Plan participants' contributions 99 125
Benefit payments (7,427) (5,813)
Acquisitions -- 94,240
================================================================================
Fair value of plan assets at end of year $ 112,910 $ 134,031
FUNDED STATUS
2002 2001
Funded status at end of year $ (34,343) $ (8,977)
Unrecognized transition asset (779) (1,098)
Unrecognized prior service cost 6,868 7,752
Unrecognized net (gain)/loss 50,670 24,534
================================================================================
Net amount recognized in statement
of financial position $ 22,416 $ 22,211
21 VALSPAR ANNUAL REPORT 2002
<PAGE>
Amounts recognized in the consolidated balance sheets were as follows:
2002 2001
Prepaid benefit cost $ 22,416 $ 22,211
Additional minimum liability (41,917) --
Intangible asset 7,007 --
Accumulated other comprehensive loss 34,910 --
- --------------------------------------------------------------------------------
Net amount recognized in statement of
financial position $ 22,416 $ 22,211
The Company's pension plans with accumulated benefit obligations in excess of
plan assets were as follows:
2002 2001
Projected benefit obligation $ 147,253 --
Acumulated benefit obligation 129,616 --
Fair value of plan assets 112,910 --
The actuarial assumptions were as follows:
2002 2001
Discount rate 5.75%-7.0% 6.0%-7.0%
Expected return on plan assets 7.0%-9.0% 7.0%-9.0%
Average increase in compensation 2.0%-2.5% 2.75%-4.0%
In addition to the Company's defined benefit pension plans, the Company sponsors
a health care plan that provides post-retirement medical benefits for some of
its executive employees. The Company's policy is to fund these benefits as they
are paid. The Company's accrued post-retirement benefit liability recognized in
the Company's balance sheet was $5,935 and $5,331 at October 25, 2002 and
October 26, 2001, respectively. Net periodic post-retirement expense was $1,216,
$487, and $150 in 2002, 2001 and 2000, respectively.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.0% at October 25, 2002 and October 26,
2001. The assumed health-care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 6.0% in 2002, then declining by 0.5% per
year to an ultimate rate of 5.5%. A 1% change in the cost trend rate would not
have a material effect on the accumulated post-retirement benefit obligation or
net periodic post-retirement expense.
NOTE 14 * SEGMENT INFORMATION
The Company operates its business in one reportable segment: Coatings. The
Company manufactures and distributes a broad portfolio of coatings products
principally in three product lines. The Industrial product line includes
decorative and protective coatings for wood, metal, and plastic substrates. The
Architectural, Automotive, and Specialty (AAS) product line includes interior
and exterior decorative paints and aerosols, automotive and fleet refinish and
high performance floor coatings. The Packaging product line includes coatings
and inks for rigid packaging containers. The Other category primarily includes
resins, colorants, and composites. The resins and colorants are used internally
and sold to other coatings manufacturers.
Net sales by product line are as follows:
2002 2001 2000
Industrial $ 836,750 $ 734,302 $ 384,027
AAS 640,516 575,365 510,055
Packaging 511,585 482,238 483,548
Other 138,002 129,065 105,690
================================================================================
$2,126,853 $1,920,970 $1,483,320
Geographic net sales are based on the country from which the customer was billed
for