<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-10611
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIFRAX INVESTMENT CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3299 34-1839043
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
UNIFRAX INVESTMENT CORP.
2351 WHIRLPOOL STREET
NIAGARA FALLS, NEW YORK 14305
(716) 278-3800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM P. KELLY
UNIFRAX INVESTMENT CORP.
2351 WHIRLPOOL STREET
NIAGARA FALLS, NEW YORK 14305
(716) 278-3800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENTS FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
WILLIAM APPLETON WILLIAM M. HARTNETT
BAKER & HOSTETLER CAHILL GORDON & REINDEL
3200 NATIONAL CITY CENTER 80 PINE STREET
CLEVELAND, OHIO 44114-3485 NEW YORK, NEW YORK 10005
(216) 621-0200 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1996
PROSPECTUS
$100,000,000
[UNIFRAX LOGO]
UNIFRAX INVESTMENT CORP.
% SENIOR NOTES DUE 2003
Unifrax Investment Corp. ("Investment Corp.") is offering (the "Offering")
$100,000,000 aggregate principal amount of its % Senior Notes due 2003 (the
"Notes"). The Offering is part of the financing that will be used to consummate
the recapitalization of Unifrax Corporation (the "Recapitalization") which will
result in Unifrax Holding Co. ("Holding") owning 90% of the common stock of
Unifrax Corporation, an indirect wholly-owned subsidiary of The British
Petroleum Company plc ("BP"). An affiliate of BP will retain the remaining 10%
of the common stock of Unifrax Corporation. The Recapitalization will be
effected pursuant to the Recapitalization Agreement (as defined). Under the
terms of the Recapitalization Agreement, Investment Corp. will merge into
Unifrax Corporation upon completion of the Offering, with Unifrax Corporation
becoming the surviving corporation (the "Company") and becoming liable for the
Notes. The consummation of the Offering and the consummation of the
Recapitalization and the transactions contemplated thereby will be concurrent,
and each is conditioned upon the other. Prior to the merger, Investment Corp.
will be the issuer and will be obligated under the Notes, and Unifrax
Corporation will have no liability either under the Notes or in connection with
the Offering. Upon consummation of the merger of Investment Corp. and Unifrax
Corporation, Unifrax Corporation, as the surviving corporation, will be liable
under the Notes and in connection with the Offering to the same extent that
Investment Corp. was so liable prior to such merger. See "The Recapitalization."
Interest on the Notes will be payable semi-annually on each April 15 and
October 15, commencing April 15, 1997, at the rate of % per annum. The Notes
will be redeemable, in whole or in part, at the option of the Company on or
after , 2000, at the redemption prices set forth herein plus accrued
interest to the date of redemption. In addition, on or prior to ,
1999, the Company may, at its option, redeem up to $30.0 million in aggregate
principal amount with the net cash proceeds of one or more Public Equity
Offerings (as defined), at the redemption price set forth herein plus accrued
interest to the date of redemption; provided, however, that after any such
redemption the aggregate principal amount of the Notes outstanding must equal at
least $70.0 million.
The Notes will be senior unsecured obligations of the Company, will rank
senior to all subordinated indebtedness of the Company and will rank pari passu
in right of payment with all other senior indebtedness of the Company, including
the indebtedness under the Credit Agreement (as defined). As of October 9, 1996,
after giving pro forma effect to the Recapitalization, the Company would have
had approximately $132.0 million of total indebtedness and $25.0 million of
secured indebtedness outstanding under the Credit Agreement (in each case
excluding unused commitments of $20.0 million under the Credit Agreement).
Upon a Change of Control (as defined), each holder will have the right to
require the Company to repurchase such holder's Notes at a price equal to 101%
of their principal amount plus accrued interest to the date of repurchase. There
can be no assurance that the Company will have the financial ability or will be
permitted by the Credit Agreement to repurchase the Notes. See "Risk
Factors--Potential Inability to Make a Required Change of Control Offer." In
addition, the Company will be obligated to offer to repurchase Notes at 100% of
their principal amount plus accrued interest to the date of repurchase in the
event of certain asset sales.
There is no existing market for the Notes, and there can be no assurance as
to the liquidity of any markets that may develop for the Notes, the ability of
the holders of the Notes to sell their Notes or the price at which such holders
would be able to sell their Notes. The Company does not intend to apply for
listing of the Notes on any securities exchange. See "Risk Factors--Absence of
Prior Market for Notes; Determination of Offering Price; Market Risk."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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PROCEEDS TO
PRICE TO UNDERWRITING INVESTMENT
PUBLIC(1) DISCOUNT(2) CORP.(3)
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Per Note.......................................... % % %
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Total............................................. $ $ $
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<FN>
(1) Plus accrued interest, if any, from .
(2) Investment Corp. has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Investment Corp., estimated at
$600,000.
</TABLE>
------------------------
THE NOTES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO
AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT TO VARIOUS OTHER CONDITIONS
INCLUDING THE UNDERWRITERS' RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS
EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE ON OR ABOUT
, 1996.
BT SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
statements included elsewhere in this Prospectus. Prior to February 29, 1996,
Unifrax Corporation ("Unifrax") was known as The Carborundum Company
("Carborundum") and included a number of divisions and subsidiaries engaged in
various manufacturing businesses. On February 29, 1996, all of the Carborundum
businesses except for the North American ceramic fibers division (the
"Division") were sold in the Saint-Gobain Sale (as defined). Concurrent with the
Saint-Gobain Sale, Carborundum was re-named Unifrax, and subsequent to the
Saint-Gobain Sale, Unifrax has consisted solely of the Division. As used herein,
unless the context otherwise requires, the "Company," prior to February 29,
1996, refers to the Division and, subsequently, refers to Unifrax and the
related sales corporations in Europe (XPE Vertriebs GmbH) and South America (NAF
Brasil Ltda.).
THE COMPANY
The Company is the leading North American manufacturer of ceramic fiber
with a market share in excess of 40% of the ceramic fiber sold in the North
American market, as measured by volume. Developed by the Company in 1942,
ceramic fiber is a white, glassy material belonging to a class of materials
known as man-made vitreous fibers (a class which also includes fiberglass and
mineral wool). Ceramic fiber possesses several commercially attractive
performance properties including stability at very high temperatures, extremely
low heat transmission and retention, light weight compared to other
heat-resistant materials, chemical stability and corrosion resistance. These
properties make ceramic fiber a superior insulating material in high temperature
applications.
Ceramic fiber's most common application has been to line industrial
furnaces, where high temperatures demand its heat-resistant characteristics.
Historically, the industrial furnace-related market has represented the largest
percentage of the Company's sales. While maintaining its strong position in this
traditional market, the Company's strategy has been to apply its expertise to
rapidly-growing, high value-added niche markets. These niche markets, which
include automotive (products such as airbag inflation filters and catalytic
converter gaskets), power generation (products such as steam boiler insulation,
duct wrap and stack linings), and fire protection (products such as commercial
kitchen exhaust duct wrap and cable trays), now account for the majority of the
Company's net sales. For the year ended December 31, 1995, approximately 44% of
the Company's net sales were derived from furnace-related markets, 31% from
automotive-related markets, and 25% from other markets. During each of the four
years ended December 31, 1995, sales of new products and applications (those
commercialized within the previous five years) represented over 20% of the
Company's net sales.
During the four-year period ended December 31, 1995, the Company's net
sales and EBITDA increased at compound annual growth rates of 12% and 28%,
respectively. During this period, the growth in EBITDA exceeded the growth in
sales due to a shift in the sales mix to higher margin products, improvements in
manufacturing efficiency, increased capacity utilization rates, and continued
control of marketing and administrative costs.
COMPETITIVE STRENGTHS
The Company has the following strengths which provide competitive
advantages in the North American ceramic fiber market.
Broad Product Line. The Company manufactures one of the broadest lines of
ceramic fiber products sold in the North American market. The Company's ceramic
fiber is produced in numerous forms, including bulk fiber, blankets and modules,
boards, papers and felts, textiles and a variety of other high value-added
products. These products are used in thermal management applications where heat
resistance, light weight and low heat transmission and retention are required.
3
<PAGE> 4
Product Innovation. The Company has demonstrated the ability to introduce
successful, high value-added products and applications for both traditional and
niche markets. The Company's product leadership can be attributed to its close
relationship with its customers and its extensive research and development
efforts. These new products have been sold in the furnace-related markets as
well as in high-growth niche markets for both existing and new applications.
Examples of successful new product introductions include porosity-controlled
paper used as a filter in automotive airbag inflators, expandable paper (known
as XPE(TM)) used as a gasket in catalytic converters, easy-to-install Anchor-Loc
2(R) furnace modules and Insulfrax(R) furnace blanket which uses a new fiber
chemistry.
Strong Customer Relationships. Long-term customer relationships with
distributors as well as end-use customers have been an important factor in the
Company's success. Of the Company's top 10 distributors in 1995, the majority
have represented the Company for over 10 years and a substantial number have
been distributors for the Company for more than 20 years. A significant number
of end-use customers have also been purchasing products from the Company for
extended periods of time. For example, in the furnace-related market, most of
the Company's current customers have been purchasing products for at least 5
years, many for over 10 years and several for over 20 years. In many situations,
especially in the case of the automotive market, customers recognize that they
must depend on a particular supplier for an extended period and consequently
exercise considerable care in the supplier selection process. The Company's
products are currently specified in numerous automotive applications, such as
airbag inflators, which require "zero defect" components. By successfully
meeting such stringent requirements, the Company is recognized as a reliable
supplier, and has developed solid relationships with its customers.
Recognized Quality. The Company's products have received repeated
recognition for high quality and excellent capability, including eight
consecutive Chrysler Pentastars, an award which Chrysler bestows on only the top
2% of its suppliers. The Company also expects its Tonawanda facility to receive
certification under QS-9000, the quality standard for GM, Ford and Chrysler
suppliers, early in 1997, although there can be no assurance that it will do so.
Low Cost Manufacturing. The Company's manufacturing strategy has
consistently emphasized investment in capital equipment and process engineering
improvements designed to increase efficiency and lower manufacturing costs. The
Company believes it has the industry's most advanced fiber manufacturing
technology and has obtained the scale of operations necessary to protect its
position as a low cost manufacturer in the North American market.
BUSINESS STRATEGY
The Company's business objective is to increase earnings by expanding its
leadership position in niche markets while maintaining its market position in
furnace-related markets. To meet this objective, the Company will continue to
focus research and development efforts on the creation of new niche products and
applications, and will add needed capacity at its New Carlisle, Indiana facility
to maintain its position as a low cost producer of bulk fiber and blanket. In
addition, the Company has developed the industry model for product stewardship,
and will continue to lead the industry's effort on such programs.
New Products and Markets. By combining its market knowledge and strong
customer relationships with its technical expertise, the Company has
successfully introduced a wide variety of new products. During each of the past
four years, new products and applications (those commercialized within the
previous five years) have accounted for over 20% of the Company's net sales.
These new products have been sold for use in existing and new applications to
both the furnace-related and high-growth niche markets, and many are designed
and qualified to meet specialized customer requirements. The Company's
cumulative research and development expenses were $9.4 million for the four
fiscal years ended December 31, 1995 and the Company expects such expenses to be
$2.5 million in 1996. The Company plans to continue to dedicate substantial
resources to its new product development programs and expects new products to
continue to drive the Company's long-term growth.
4
<PAGE> 5
Continued Cost Reduction and Productivity Enhancements. The Company's
current management team has a successful track record of achieving cost
reductions and will continue these efforts. By concentrating its furnacing
operations primarily at one location, the Company believes that it has developed
the industry's most advanced fiber manufacturing technology and has obtained the
scale of operations necessary to protect its position as a low cost manufacturer
in the North American market. The Company spent $12.8 million in total capital
expenditures for the four fiscal years ended December 31, 1995. The Company
anticipates spending $9.7 million in 1996, including construction in progress
under a $13.7 million furnace expansion program to be completed in 1997. This
furnace expansion is designed to provide needed capacity and flexibility and to
further reduce manufacturing costs.
Leadership in Product Health and Safety. Man-made fibers such as ceramic
fiber, fiberglass and mineral wool have been categorized as "possibly
carcinogenic in humans" and "probably carcinogenic in humans" by various
government agencies and health organizations. The Company has been the
industry's leader with respect to management of potential health and product
safety issues associated with ceramic fiber. Specifically, the Company has
established systems to identify and reduce potential adverse health effects, if
any, associated with its products. The Company works actively with its employees
and customers to reduce workplace exposure through improved product handling
procedures. In addition, the Company has been active in developing new types of
industrial fibers with physical and chemical properties that may help to reduce
the potential risks associated with ceramic fiber. See "Business -- Product and
Health Safety Issues."
RISK FACTORS
An investment in the Notes involves certain risks associated with the
Company's business and the industry in which it competes, including (i) the
Company's dependence on ceramic fiber and the health and safety issues related
thereto, (ii) the Company's substantial leverage, (iii) restrictions imposed by
the terms of the Company's indebtedness, (iv) the Company's potential inability
to make a Change of Control Offer as required by the Notes, (v) the impact of
environmental regulations on the company's operations and property and
governmental regulations relating thereto, (vi) the control of the Company by a
majority stockholder, (vii) the dependence by the Company on certain key
executives, (viii) the Company's sensitivity to general economic conditions and
the highly competitive nature of the ceramic fiber industry, (ix) the Company's
dependence on a certain product line and on a raw material supplier, and (x)
restrictions on the Company's ability to expand internationally due to a
covenant not to compete. For a more detailed discussion of these and certain
other risks, see "Risk Factors."
SAINT-GOBAIN SALE
On February 29, 1996, BP completed the sale of substantially all of the
assets of Carborundum, other than the Division, to Societe Europeenne des
Produits Refractaires ("SEPR") and various other affiliates of Compagnie de
Saint-Gobain, a multinational French manufacturing company. In connection with
that sale (the "Saint-Gobain Sale"), the Company entered into a series of
agreements with SEPR which govern their market and business relationships. These
agreements affect how the Company conducts business and currently restrict the
Company's ability to expand its sales outside of the North American market for a
period of 5 years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Relationships and Related
Transactions -- Relationship with SEPR."
THE INVESTORS
Holding was formed in June 1996 by Kirtland Capital Partners II L.P.
(solely or together with its predecessors and affiliates "Kirtland") to effect
the Recapitalization. Kirtland is a private investment firm based in Cleveland,
Ohio, which has been buying and building manufacturing and distribution
businesses since 1978. Kirtland has made investments in middle market businesses
that manufacture and distribute wire and wire harnesses, PVC pipe and plumbing
products and decorative laminates. In addition, Kirtland previously made a
related industry investment in North American Refractories Co., a leading
manufacturer and
5
<PAGE> 6
distributor of refractory products. See "Certain Relationships and Related
Transactions -- Relationship with Kirtland and Holding."
THE RECAPITALIZATION
The Offering is part of the Recapitalization which is being effected
pursuant to the Recapitalization Agreement dated as of June 9, 1996 (the
"Recapitalization Agreement"), among Unifrax, Holding, Investment Corp. and BP
and certain of its subsidiaries, including BP America, Inc. ("BP America").
Certain subsidiaries of BP own all of the outstanding stock of Unifrax. The
principal components of the Recapitalization, which will be consummated
concurrently with the Offering (the "Closing"), include the following:
- Kirtland and management of the Company will invest $27.0 million in
Holding (the "Equity Investment"). Holding owns all of the outstanding
capital stock of Investment Corp., the registrant, which was organized to
effect the Recapitalization.
- Investment Corp. will merge into Unifrax with Unifrax becoming the
surviving corporation and becoming liable for the Notes.
- The proceeds of the Offering, together with estimated initial borrowings
by the Company of $25.0 million under the Credit Agreement, $7.0 million
under the subordinated promissory note to be issued by the Company to a
subsidiary of BP (the "BP Note") and the proceeds of the Equity
Investment, will be used to: (i) pay affiliates of BP $144.0 million in
connection with the redemption of certain stock of Unifrax held by
affiliates of BP; (ii) pay affiliates of BP $10.0 million as
consideration for the Non-compete Agreement (the "Non-compete Agreement")
between BP and Holding; and (iii) pay an estimated $5.0 million of fees
and expenses relating to the Recapitalization, the Offering, the Credit
Agreement and the Equity Investment. See "The Recapitalization."
Upon completion of the Recapitalization, Holding will own 90% of the common
stock of the Company and an affiliate of BP will own 10% of the common stock of
the Company. See "Risk Factors -- Controlling Stockholder," "Principal
Stockholders" and "Certain Relationships and Related Transactions."
Pursuant to the Recapitalization Agreement, BP America will indemnify
Holding and the Company, subject to certain limitations, against liabilities
arising from operations of the Company which were discontinued prior to the
Closing, liabilities for wrongful death or personal injury allegedly caused by
exposure, prior to the Closing, to refractory ceramic fiber products
manufactured by the Company, and certain environmental matters. See "Certain
Relationships and Related Transactions -- Relationship with BP and its
Subsidiaries -- Recapitalization Agreement."
LOCATION OF EXECUTIVE OFFICES
The Company's executive offices are located at 2351 Whirlpool Street,
Niagara Falls, New York 14305. The Company's telephone number is (716) 278-3800.
6
<PAGE> 7
THE OFFERING
Issuer..................... Investment Corp. will issue the Notes and will
merge into Unifrax Corporation in connection with
the Recapitalization. After the merger, Unifrax
Corporation will be the surviving corporation and
will be liable for the Notes.
Securities Offered......... $100,000,000 aggregate principal amount of %
Senior Notes due 2003.
Maturity Date.............. , 2003.
Payment Dates.............. Interest on the Notes will accrue from the date of
issuance and will be payable semiannually on each
April 15 and October 15, commencing April 15, 1997.
Ranking.................... The Notes will be senior unsecured obligations of
the Company (as defined), will rank senior to all
subordinated indebtedness of the Company and will
rank pari passu in right of payment with all other
senior indebtedness of the Company, including the
indebtedness under the Credit Agreement (as
defined). Since the indebtedness under the Credit
Agreement is secured by the assets of the company,
there can be no assurance that the Notes will be
paid in full. See "Description of Notes."
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company on or after
, 2000, at the redemption prices set forth herein
plus accrued interest to the date of redemption. In
addition, on or prior to , 1999, the
Company may, at its option, redeem up to $30.0
million in aggregate principal amount with the net
cash proceeds of one or more Public Equity
Offerings, at the redemption price set forth herein
plus accrued interest to the date of redemption;
provided, however, that after any such redemption
the aggregate principal amount of the Notes
outstanding must equal at least $70.0 million. See
"Description of Notes -- Redemption -- Optional
Redemption."
Change of Control.......... If a Change of Control occurs, the Company will be
required to offer to repurchase all outstanding
Notes at a price equal to 101% of their principal
amount plus accrued interest to the date of
repurchase. The Credit Agreement will restrict the
repurchase by the Company of Notes in these and
other circumstances. If the Company fails to
repurchase the Notes when so obligated, that
failure will constitute a default under the
Indenture (as defined). The occurrence of a default
under the Indenture will also cause a default under
the Credit Agreement. See "Description of
Notes -- Change of Control."
Offers to Purchase......... In the event of certain asset sales, the Company
will be required to offer to repurchase the Notes
at a price equal to 100% of their principal amount
plus accrued interest to the date of repurchase.
See "Description of Notes -- Certain
Covenants -- Limitation on Asset Sales."
Certain Covenants.......... The Indenture governing the Notes (the "Indenture")
will impose certain limitations on the ability of
the Company and its subsidiaries to, among other
things, incur additional indebtedness, incur liens,
pay dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, engage
in certain lines of business, merge or consolidate
with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Company,
impose restrictions on the ability of a subsidiary
to pay certain dividends or make certain payments
to the Company and sell or issue preferred stock of
subsidiaries to third parties. See "Description of
Notes -- Certain Covenants."
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<PAGE> 8
USE OF PROCEEDS
Aggregate consideration for the Recapitalization, the Non-compete Agreement
and related fees and expenses will be funded with (i) a $25.0 million term loan
under the Credit Agreement, (ii) the $100.0 million proceeds of the Offering,
(iii) the $7.0 million BP Note, and (iv) the $27.0 million Equity Investment.
The sources and uses of funds to consummate the Recapitalization and
related transactions are set forth in the following table:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Credit Agreement(a)................................................ $ 25.0
The Notes.......................................................... 100.0
The BP Note........................................................ 7.0
Equity Investment.................................................. 27.0
------
Total Sources............................................ $ 159.0
======
USES OF FUNDS:
Payments to existing stockholder(b)................................ $ 144.0
Non-compete Agreement(c)........................................... 10.0
Fees and expenses.................................................. 5.0
------
Total Uses............................................... $ 159.0
======
<FN>
- ---------------
(a) The Credit Agreement will consist of a $25.0 million term loan and a
revolving credit facility of $20.0 million. The Company anticipates that no
amounts will be borrowed under the revolving credit facility to consummate
the Recapitalization. See "Description of Credit Agreement and Other
Indebtedness."
(b) The payments to existing stockholder are made in consideration of the
redemption of shares of Unifrax and the sale of shares of Unifrax, and the
amount of the payments is subject to decrease based on changes in the net
working capital of the Company at the Closing. See "The Recapitalization."
(c) See "Certain Relationships and Related Transactions -- Relationship with BP
and its Subsidiaries -- Non-compete Agreement" for a description of the
Non-compete Agreement to be provided by BP to Holding.
</TABLE>
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary financial data of the Company for
the five years ended December 31, 1995 and for the six-month periods ended as of
June 30, 1995 and June 30, 1996, and certain pro forma data for the year ended
December 31, 1995 and the six-month period ended June 30, 1996. The historical
data set forth below for 1993, 1994 and 1995 have been derived from, and should
be read in conjunction with, the Company's audited financial statements and the
notes thereto appearing elsewhere in this Prospectus. The historical financial
data set forth below for 1992 has been derived from audited financial statements
which are not included herein. The historical financial data set forth below for
1991 has been derived from unaudited financial statements of the Company which,
in the opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. The
historical financial data for the six-month periods ended June 30, 1995 and June
30, 1996, have been derived from, and should be read in conjunction with, the
unaudited financial statements and the notes thereto of the Company for such
periods which are also included herein. Such financial statements reflect, in
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Operating results
for the six-month period ended June 30, 1996 are not necessarily indicative of
the results to be expected for the year ended December 31, 1996.
The pro forma statement of income data for 1995 and for the six-month
period ended June 30, 1996, assume that the Recapitalization and the
Saint-Gobain Sale occurred on January 1, 1995. The pro forma balance sheet data
as of June 30, 1996, gives effect to the Recapitalization as if it had occurred
on June 30, 1996. The pro forma financial data do not purport to represent what
the Company's financial condition or results of operations would actually have
been had the Recapitalization and the Saint-Gobain Sale in fact occurred on the
assumed date, or to project the Company's financial condition or results of
operations for any future period or date.
9
<PAGE> 10
The following table should be read in conjunction with "Selected Historical
Financial Data", "Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX-MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, --------------------------------------
------------------------------------------------------------- PRO FORMA
PRO FORMA COMBINED(a) CONSOLIDATED
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- ------- ------- ------- --------- --------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............. $53,540 $64,565 $67,692 $76,246 $84,064 $83,638 $ 43,036 $45,192 $ 45,121
Cost of goods sold.... 27,620 33,099 34,153 37,590 40,630 40,594 20,803 22,579 22,573
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit.......... 25,920 31,466 33,539 38,656 43,434 43,044 22,233 22,613 22,548
Selling and
distribution......... 9,462 10,370 9,932 10,688 11,579 12,066 6,064 6,418 6,499
Administration........ 5,701 5,212 5,415 6,279 6,189 8,869 3,218 3,429 4,431
Allocated corporate
charges (b).......... 2,900 2,600 2,800 2,300 2,700 -- 1,350 356 --
Research and
development.......... 2,106 2,455 2,247 2,272 2,450 2,450 1,372 1,121 1,121
Restructuring
charges.............. -- 480 155 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- --------
Operating income...... 5,751 10,349 12,990 17,117 20,516 19,659 10,229 11,289 10,497
Interest expense...... -- -- -- -- -- (13,316) -- -- (6,609)
Other income
(expense)............ 541 555 549 591 932 542 392 43 (46)
------- ------- ------- ------- ------- ------- ------- ------- --------
Income before income
taxes and accounting
change............... 6,292 10,904 13,539 17,708 21,448 6,885 10,621 11,332 3,842
Provision for income
taxes................ 2,511 4,356 5,611 7,256 8,743 2,772 4,316 4,697 1,625
------- ------- ------- ------- ------- ------- ------- ------- --------
Income before
accounting change.... 3,781 6,548 7,928 10,452 12,705 4,113 6,305 6,635 2,217
Effect of accounting
change............... -- -- (2,658)(c) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- --------
Net Income............ $ 3,781 $ 6,548 $ 5,270 $10,452 $12,705 $ 4,113 $ 6,305 $ 6,635 $ 2,143
======= ======= ======= ======= ======= ======= ======= ======= ========
OTHER DATA:
EBITDA (d)............ $ 9,515 $14,501 $17,510 $21,928 $25,749 $25,282 $ 12,715 $13,287 $ 12,796
Depreciation and
amortization......... 3,223 3,597 3,971 4,220 4,301 5,081 2,094 1,955 2,345
Cash flows from
operating
activities(g)........ NA 9,347 10,172 11,324 18,925 8,040 8,141
Cash flows from
investing
activities(g)........ NA (3,571) (2,950) (2,578) (3,593) (1,169) (3,049)
Cash flows from
financing
activities(g)........ NA (6,049) (7,134) (8,743) (15,393) (6,858) (5,129)
Capital
expenditures......... 2,751 3,669 3,032 2,670 3,404 3,404 1,193 2,795 2,795
Ratio of EBITDA to
interest expense
(d).................. 1.90x 1.94x
Ratio of earnings to
fixed charges (e).... 75.90x 113.41x 124.08x 166.50x 165.98x 1.48x 169.59x 172.70x 1.54x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital....... $11,103 $11,597 $13,583 $16,688 $14,763 $ 17,151 $15,362 $ 16,169
Total assets.......... 53,453 54,327 55,105 56,897 54,239 56,668 57,903 83,048
Long-term debt........ -- -- -- -- -- -- -- 132,000
Total liabilities..... 15,414 15,888 18,634 18,943 18,815 19,136 20,788 146,591
Parent company
investment/
Stockholders' equity
(deficit)(f)......... 38,039 38,439 36,471 37,954 35,424 37,532 37,115 (63,543)
<FN>
- ---------------
(a) Represents the combined data of Unifrax and the affiliated overseas sales
corporations created following the Saint-Gobain Sale.
(b) Certain administrative services and research and development activities were
provided to all businesses of Carborundum including the Division on a
centralized basis. Indirect administrative expenses were allocated to the
businesses either based on the level of service provided or based on the
overall cost structure of Carborundum. In the opinion of management of the
Company, charges and allocations have been determined on a reasonable basis;
however, they are not necessarily indicative of the level of expenses which
might have been incurred had the Division been operating as a stand-alone
entity.
</TABLE>
10
<PAGE> 11
(c) Represents the cumulative effect of a change in accounting principle made in
1993 related to the accounting for post-retirement benefits other than
pensions.
(d) "EBITDA" means earnings from operations before interest expense, taxes,
depreciation, amortization, and cumulative effect of change in accounting
principle. EBITDA is included because management believes that it is an
indicator used by investors to gauge a company's ability to service its
interest and principal obligations. EBITDA should not be considered in
isolation from, as a substitute for or as being more meaningful than net
income, cash flows from operating investing and financing activities, or
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles and should not be construed as an
indication of the Company's operating performance or as a measure of
liquidity. EBITDA, as presented herein, may be calculated differently by
other companies and, as such, EBITDA amounts presented herein may not be
comparable to other similarly titled measures of other companies.
(e) Earnings used in computing the ratio of earnings to fixed charges consist of
income from continuing operations before income taxes and cumulative effect
of a change in accounting principle plus fixed charges. Fixed charges
consist of interest expense, amortization of financing costs and imputed
interest on lease obligations.
(f) The Division (prior to the Closing) had no separately identifiable equity
other than an amount equal to its net assets captioned as "Parent company
investment." In connection with the Recapitalization, this investment will
be eliminated and replaced by stockholders' equity comprised of the
Company's issued common stock at par value and a residual amount of
additional paid-in capital.
(g) Information for 1991 is not available.
11
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
risk factors, as well as the other information set forth in this Prospectus.
DEPENDENCE ON CERAMIC FIBER; HEALTH AND SAFETY ISSUE
Possible Health Concerns Related to Ceramic Fibers. Substantially all of
the Company's products contain ceramic fiber, a man-made vitreous fiber which,
along with similar fibers such as fiberglass and mineral wool, has been
categorized as "possibly carcinogenic in humans" by the International Agency for
Research on Cancer, an agency within the World Health Organization of the United
Nations. Other government agencies and health organizations, including the U.S.
Environmental Protection Agency (the "EPA"), have categorized ceramic fiber as
"probably carcinogenic in humans." To date, studies of workers with occupational
exposure to airborne ceramic fiber have found no clinically significant
relationship between prior or current exposure to ceramic fiber and disease in
humans; however, independent animal studies have indicated that ceramic fiber
inhaled by test animals can cause cancer. Whether or not ceramic fiber is ever
demonstrated to cause disease in humans, the Company could be required to spend
substantial amounts of money in connection with the monitoring, study, and
resolution of this health and safety issue, including efforts to develop a
product or process that would meet any government-imposed regulation.
Furthermore, the Company's efforts to develop a product or process that would
satisfy any regulatory initiative may not be successful.
Ceramic Fibers Litigation. From time to time, the Company has been named
as a defendant in lawsuits involving alleged injury suffered from exposure to
ceramic fiber. The Company believes the lawsuits brought against it have been
without merit and the litigation currently pending, or to its knowledge
threatened, will not have a material adverse effect on the financial condition
or results of operations of the Company. The Company's belief is based on the
fact that, although animal studies have indicated that ceramic fiber inhaled by
test animals can cause disease, there have been no human diseases proven to be
caused by exposure to refractory ceramic fiber. The Company's belief is also
based on the indemnification agreements with BP, as set forth below. As part of
the Recapitalization, BP has agreed to indemnify the Company and Holding against
certain liabilities for wrongful death or personal injury arising from exposure
to ceramic fiber prior to the Recapitalization. The Company is aware of no third
party evaluations of the Company's liability for ceramic fiber litigation.
Additional litigation and administrative proceedings could be brought against
the Company and its distributors and customers, and the Company could be exposed
to significant defense costs as well as potential adverse judgments with respect
to exposure claims for periods after the Recapitalization. However, BP's
indemnity will not extend to any liabilities for wrongful death or personal
injury caused by exposures which occur after the Recapitalization. If claims
arise from exposure in part before and in part after the Recapitalization, then
BP's indemnity will only apply to the portion of the injury arising from the
exposure prior to the Recapitalization. BP shall not indemnify the Company with
respect to any liabilities for wrongful death or personal injury to the extent
caused by the failure of the Company to maintain a Product Stewardship Program
consistent with that maintained by the Company prior to the Recapitalization, as
modified in a commercially reasonable manner in accordance with changing
regulatory, scientific and technical factors. In addition, there can be no
assurance that the Company will be able to obtain adequate product liability
insurance coverage for any future exposures which are not covered by BP's
indemnity. BP's failure to indemnify the Company, or the imposition of claims
against the Company which are not covered by BP's indemnity, could have a
material adverse effect on the Company. See "Certain Relationships and Related
Transactions -- Relationship with BP and Its Subsidiaries."
Cost of Compliance with Future Government Regulations. To date, studies of
occupational exposure have found no clinically significant relationship between
prior or current exposure to ceramic fiber and disease in humans; however, there
can be no assurance that a link will not be found in the future. The costs which
may be incurred by the Company in dealing with the ceramic fiber health issue
and the imposition of government regulation cannot be reasonably estimated at
this time but could have a material adverse effect on the financial condition
and results of operations of the Company. The EPA has proposed to make
refractory ceramic fibers subject to a "Significant New Use Rule" ("SNUR"); a
final rule has never been promulgated, but the
12
<PAGE> 13
May 13, 1996 Regulatory Agenda predicts that U.S. EPA will take final action on
the proposed rule in December of 1996. This date for final action has been
postponed from year to year for several years. Under a SNUR, a manufacturer must
notify the EPA if it plans a significant new use of one of its chemicals or
compounds, and the EPA may require testing to ensure that the proposed new use
is safe. Since the Company relies heavily on the development of new uses for
ceramic fibers and the introduction of new products for its sales growth, this
increased governmental regulation could materially impact operations of the
Company.
Although no specific U.S. government regulations currently exist for the
allowable concentrations of ceramic fiber in breathable air, the U.S.
Occupational Safety and Health Administration ("OSHA"), the National Institute
of Occupational Safety and Health ("NIOSH"), and Health Canada ("HC") have been
reviewing the potential health implications of ceramic fiber exposure for
several years. Currently, the Company voluntarily complies with an industry
recommended exposure guideline of 1.0 fiber per cubic centimeter of air as
determined by the Refractory Ceramic Fiber Coalition ("RCFC"). The American
Conference of Governmental Industrial Hygienists ("ACGIH"), an independent
association of prominent scientists, is currently considering a recommended
exposure guideline for ceramic fibers between 0.1 and 0.5 fibers per cubic
centimeter of air. Such ACGIH recommendations may be adopted by government
regulators. Although none are presently foreseen domestically, if the U.S.
adopts legislative or regulatory standards severely restricting the use of
ceramic fiber or severely limiting fiber exposure, such regulations could have a
material adverse effect on the Company. There is no guarantee that the Company
or its customers could economically reduce exposure levels. The higher costs
associated with meeting such standards could make the Company's products less
competitive than alternative products. See "The Recapitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business -- Product and Health Safety Issues."
SUBSTANTIAL LEVERAGE
After consummation of the Recapitalization, the Company will have
significant indebtedness. At June 30, 1996, on a pro forma basis after giving
effect to the Recapitalization and the financing thereof, the Company would have
had total indebtedness of approximately $132.0 million, and a stockholders'
deficit of $63.5 million. In addition, the Company expects to borrow additional
amounts under the Credit Agreement or otherwise for working capital and other
corporate purposes. Under the Credit Agreement, the Company will have a $20
million revolving credit facility, which will be undrawn at the Closing. There
are no currently existing arrangements to borrow additional funds beyond the
funds available under the Credit Agreement. See "The Recapitalization,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Credit Agreement and Other
Indebtedness" and the Financial Statements and notes thereto included elsewhere
in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited, (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its indebtedness, (iii) the agreements governing
the Company's long-term indebtedness will contain certain restrictive financial
and operating covenants that could limit the Company's ability to compete and
expand, and (iv) the Company's vulnerability to economic downturns may be
increased, and its ability to withstand competitive pressures or respond to
changing business and economic conditions may be reduced. The ability of the
Company to pay interest and principal on the Notes to satisfy its other debt
obligations and to make planned expenditures will be dependent on the future
operating performance of the Company, which could be affected by changes in
economic conditions and other factors, including factors beyond the control of
the Company. A failure to comply with the covenants and other provisions of its
debt instruments could result in events of default under such instruments, which
could permit acceleration of the debt under such instruments and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions. The Company believes that cash flow from
operations will be sufficient to cover its debt service requirements and other
requirements. However, if the Company is at any time unable to generate
sufficient cash flow from operations to service its indebtedness,
13
<PAGE> 14
it may be required to seek to renegotiate the terms of the instruments relating
to that indebtedness or seek to refinance all or a portion of that indebtedness
or to obtain additional financing. There can be no assurance that the Company
will be able to successfully renegotiate such terms or that any such refinancing
would be possible or that any additional financing could be obtained, or
obtained on terms that are favorable or acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Credit Agreement and Other Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. The Indenture will also impose
restrictions on the ability of subsidiaries to pay dividends or make certain
payments to the Company. The Credit Agreement will contain other restrictive
covenants, including financial covenants relating to the net worth, capital
expenditures and interest coverage and debt coverage ratios of the Company, and
covenants relating to employee benefits, environmental laws, certain contracts
for the purchase of materials for services, and the amendment of certain
documents (including the Indenture and the Notes) that are not contained in the
Indenture. In addition, certain covenants that are contained in both the
Indenture and the Credit Agreement, including limitations on indebtedness,
liens, mergers and consolidations, the purchase and sale of assets, the payment
of dividends and other payments in respect to stock, are more restrictive in the
Credit Agreement. A breach of any of these covenants could result in a default
under the Credit Agreement and/or the Indenture. Upon the occurrence of an event
of default under the Credit Agreement, the lenders thereunder could elect to
declare all amounts outstanding under the Credit Agreement, together with
accrued interest, to be immediately due and payable. If the Company were unable
to repay those amounts, such lenders could proceed against the collateral
granted to them to secure that indebtedness. If the lenders under the Credit
Agreement accelerate the payment of such indebtedness, there can be no assurance
that the assets of the Company would be sufficient to repay in full such
indebtedness and the other indebtedness of the Company, including the Notes.
Substantially all of the Company's assets will be pledged as security for
indebtedness incurred under the Credit Agreement. See "Description of
Notes -- Certain Covenants" and "Description of Credit Agreement and Other
Indebtedness."
POTENTIAL INABILITY TO MAKE A REQUIRED CHANGE OF CONTROL OFFER
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all of the Notes that might be delivered by Holders seeking
to accept the Change of Control offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third-party financing to the extent that it does not
have available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. In addition,
the Credit Agreement will restrict the repurchase of Notes by the Company in
connection with a Change of Control Offer and restricts the ability of the
Company to incur indebtedness from third parties, which restriction may only be
waived at the discretion of the lenders under the Credit Agreement.
If the Company fails to repurchase the Notes when so obligated, that
failure will constitute a default under the Indenture. The occurrence of a
default under the Indenture will also cause a default under the Credit
Agreement, and since the indebtedness under the Credit Agreement will be secured
by the assets of the Company, there can be no assurance that the Notes will be
paid in full.
PROTECTION LIMITS OF THE INDENTURE
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant requiring the Company to make a Change of Control Offer. The
restrictions in the Indenture may make it more difficult or discourage a
takeover of the Company, whether or not the management of the Company is in
favor or opposed. Consequently, consummation of any such transaction in certain
circumstances may require the
14
<PAGE> 15
repurchase of the Notes, and there can be no assurance that the Company or the
acquiring party will have sufficient financial resources to effect such
repurchase or whether the Company will be permitted to do so by the lenders
under the Credit Agreement. See "-- Potential Inability to Make a Required
Change of Control Offer." Although these restrictions cover arrangements that
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Notes protection in all circumstances
from the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, or similar transaction including risk of nonpayment of principal
and interest.
Furthermore, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain limited purposes. See "Description
of Notes -- Modification of the Indenture."
IMPACT OF ENVIRONMENTAL REGULATION; GOVERNMENTAL REGULATION
Like similar companies, the Company's operations and properties are subject
to a wide variety of foreign, federal, state and local laws and regulations,
including those governing the use, storage, handling, generation, treatment,
emission, release, discharge and disposal of certain materials, substances and
wastes, the remediation of contamination in the environment, and the health and
safety of employees and other individuals. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to environmental
protection and health and safety matters, and there can be no assurance that
material costs or liabilities will not be incurred in connection with such
claims. The Company may incur liability as a potentially responsible party
("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"), or comparable state
law in connection with off-site disposal activities at three sites. Carborundum
has entered into a Consent Decree with the New York State Department of
Environmental Conservation to remediate contamination at the Company's facility
located in Sanborn, New York. However, pursuant to the Recapitalization
Agreement, BP has agreed to indemnify the Company as to these and other
environmental matters. See "Certain Relationships and Related Transactions --
Relationship with BP and Its Subsidiaries -- Recapitalization Agreement --
Environmental Indemnity." Based upon its experience to date, the Company
believes that the future cost of compliance with existing environmental
protection and health and safety laws and regulations, and liability for known
claims of this type, will not have a material adverse effect on the Company's
business or financial position. However, future events, such as changes in
existing laws and regulations or their interpretation, and more rigorous
enforcement policies of regulatory agencies, may give rise to additional
expenditures or liabilities that could be material to the Company's business or
financial position. See "Business -- Environmental Matters."
CONTROLLING STOCKHOLDER
Upon consummation of the Recapitalization, Holding will own 90% of the
outstanding common stock of the Company. Kirtland owns a majority of the
outstanding common stock of Holding. By virtue of such stock ownership, Kirtland
will have the power to control all matters submitted to stockholders of the
Company and to elect all directors of the Company and its subsidiaries. The
interests of Kirtland as equity holder may differ from the interests of holders
of the Notes. See "Principal Stockholders" and "Certain Relationships and
Related Transactions."
DEPENDENCE ON KEY EXECUTIVES
The Company's performance to date has depended largely on William P. Kelly,
the Company's President and Chief Executive Officer, and certain other executive
officers of the Company. The loss of the services of Mr. Kelly or such other
persons could have a material adverse effect on the business and operations of
the Company and there can be no assurance that the Company would be able to find
replacements with equivalent skills. The Company has no written employment
agreement with, or "key man" life insurance on, its executive officers. See
"Management."
15
<PAGE> 16
GENERAL ECONOMIC CONDITIONS; COMPETITION
The Company's business is sensitive to downturns in the general economy
because a substantial portion of its products are used in cyclical industries.
Furthermore, the Company recently began a $14.4 million expansion project at its
facility in New Carlisle, Indiana. This expansion will increase the Company's
fixed costs and may increase its sensitivity to general economic conditions. See
"Business -- Cyclicality and Seasonality."
The ceramic fiber industry is highly competitive, and some of the Company's
competitors are larger and have greater resources than the Company. This
competition could adversely affect the Company's financial condition and results
of operations. See "Certain Relationships and Related Transactions --
Relationship with SEPR" and "Business -- Competition."
DEPENDENCE ON PRODUCT LINE
The adoption of automotive airbags in the U.S. over the past five years has
resulted in rapid growth in the Company's sales of porosity-controlled paper,
which is used in airbag inflators. Today most airbag inflation systems depend on
sodium azide technology. The Company believes that sodium azide technology may
be gradually displaced in new car designs by one or more alternative
technologies which may or may not use the Company's porosity-controlled paper.
As new car models are designed, alternative technologies existing or being
developed may replace the Company's ceramic based fiber paper, leaving the
Company with a smaller potential market for its products. During each of the two
years ended December 31, 1994 and December 31, 1995, the Company's sales of
porosity-controlled paper represented between 10% and 15% of the Company's total
net sales. A substantial decrease in sales of porosity-controlled paper, if it
were to occur, could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Markets."
DEPENDENCE ON RAW MATERIAL SUPPLIER
Vermiculite is a mineral which is an important raw material in the
manufacture of the XPE(TM) product line used in automotive catalytic converters.
The Company currently purchases approximately one-half of its requirements of
vermiculite from one supplier in China and the other half from a U.S. supplier.
Because vermiculite from the Chinese source has superior performance qualities,
the Company believes that over the next two to three years, both it and its
competitors will become increasingly reliant on the Chinese source. Although the
Company is attempting to identify additional sources, at the present time, no
additional source of vermiculite with comparable performance qualities has been
located, and if such a source is located in the future, there can be no
assurance that supplies can be obtained from such source on the same terms and
conditions as are obtained from the current supplier. During the year ended
December 31, 1995, the Company's sales of XPE(TM) represented approximately 10%
of the Company's net sales. Any significant interruption in the supply of
vermiculite for an extended period of time could have a material adverse effect
on the financial condition and results of operations of the Company. See
"Business -- Markets," and "Business -- Manufacturing and Operations."
RESTRICTIONS ON INTERNATIONAL EXPANSION
As part of the arrangements related to the Saint-Gobain Sale, the Company
entered into a series of agreements with SEPR which affect how the Company
conducts business outside the North American market. These agreements include
the Company's covenant not to compete with SEPR outside the North American
market until March 1, 2001, and other restrictions on the Company's ability to
distribute its products and license its technology outside the North American
market. These arrangements restrict the Company's ability to expand its sales
(other than XPE(TM) sales) outside the North American market. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions -- Relationship with SEPR."
16
<PAGE> 17
ABSENCE OF PRIOR MARKET FOR NOTES; DETERMINATION OF OFFERING PRICE; MARKET RISK
The Company does not intend to apply for a listing of the Notes on a
securities exchange. There is currently no established market for the Notes and
there can be no assurance as to the liquidity of markets that may develop for
the Notes. If such markets were to exist, the Notes could trade at prices that
may be lower than the initial market values thereof, depending on many factors,
including prevailing interest rates, the markets for similar securities, the
financial performance of the Company and other factors.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading market independent of
the financial performance of, and prospects for, the Company.
FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness such as the Notes may be
subject to review under relevant state and federal fraudulent conveyance laws if
a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of
the Company. Under these laws, if a court were to find that, after giving effect
to the sale of the Notes and the application of the net proceeds therefrom,
either (a) the Company incurred such indebtedness with the intent of hindering,
delaying or defrauding creditors or (b) the Company received less than
reasonably equivalent value or consideration for incurring such indebtedness and
(i) was insolvent or were rendered insolvent by reason of such transactions,
(ii) was engaged in a business or transaction for which the assets remaining
with the Company constituted reasonably small capital or (iii) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court may subordinate such indebtedness to presently
existing and future indebtedness of the Company, avoid the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to the
Company's creditors, or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order
to determine solvency. To the extent that proceeds from the sale of the Notes
were used to finance the Recapitalization, a court may find that the Company did
not receive fair consideration or reasonably equivalent value for the incurrence
of the indebtedness represented thereby. In addition, if a court were to find
that any of the components of the Recapitalization constituted a fraudulent
transfer, to the extent that proceeds from the sale of the Notes were used to
finance the Recapitalization, a court may find that the Company did not receive
fair consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Notes.
The Company believes that it received equivalent value at the time the
indebtedness under the Notes was incurred. In addition, the Company does not
believe that, after giving effect to the Recapitalization, it (i) was or will be
insolvent or rendered insolvent, (ii) was or will be engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, nor did any of such entities intend to incur, or believe that they will
or would incur, debts beyond its ability to pay such debts as they mature. These
beliefs are based on the Company's operating history, analysis of internal cash
flow projections and estimated values of assets and liabilities of the Company
at the time of the Offering and after giving pro forma effect to the
Recapitalization. There can be no assurance, however, that a court passing on
these issues would make the same determination.
LACK OF INDEPENDENT OPERATING HISTORY
Holding, which was formed in June 1996 to effect the Recapitalization, has
no operating history. The Company has conducted business as a division of BP and
has no independent operating history. The Company
17
<PAGE> 18
has been dependent upon BP for certain financial and administrative support.
Following consummation of the Recapitalization, the company will be responsible
for administering its own treasury, cash management, accounting, legal, risk
management, tax, environmental, insurance, human resources and other services.
BENEFITS TO INSIDERS
Kirtland is the majority shareholder of Holding which, upon completion of
the Recapitalization, will own 90% of the Common Stock of the Company. At the
Closing, the Company will pay Kirtland a financing fee, and will reimburse
Kirtland for its out of pocket expenses as compensation for its services as
financial advisor. Also at the Closing, Kirtland will enter into an advisory
services agreement with the Company pursuant to which Kirtland will provide
management consulting and financial advisory services to the Company. See
"Certain Relationships and Related Transactions -- Relationship with Kirtland
and Holding."
18
<PAGE> 19
THE RECAPITALIZATION
The Offering is part of the Recapitalization which is being effected
pursuant to the Recapitalization Agreement. Currently, all of the outstanding
stock of Unifrax is owned by BP Exploration (Alaska) Inc. ("BPX") and The
Standard Oil Company ("Standard"). BPX and Standard are subsidiaries of BP. At
the Closing, the following steps shall occur in the order set forth below:
1. BP shall contribute to Unifrax XPE Vertriebs GmbH and NAF Brasil Ltda.
2. Unifrax shall redeem, and BPX and Standard shall sell to Unifrax, the
one share of Unifrax held by Standard and 79 shares of the 99 shares of
Unifrax held by BPX (the "Redeemed Shares") in exchange for a written
promise from Unifrax to pay an aggregate of $120.0 million (the
"Redemption Cash") and delivery of the BP Note.
3. Holding will purchase from BPX 18 shares of Unifrax, leaving BPX two
shares of Unifrax. Holding shall pay BPX $17.0 million in cash for the
18 shares of Unifrax (the "Initial Payment"). The Initial Payment is
subject to a decrease based on changes in the net working capital of the
Company. Additionally, Holding will pay BP $10.0 million in
consideration for the Non-compete Agreement.
4. Investment Corp. shall complete the Offering.
5. Investment Corp. and Unifrax shall be merged, with Unifrax the surviving
corporation. Pursuant to the merger: (i) all outstanding shares of
Unifrax held by BPX shall be converted into 2,000 shares of common stock
of Unifrax; (ii) all of the outstanding shares of Unifrax held by
Holding shall be converted into 18,000 shares of common stock of
Unifrax; and (iii) all outstanding shares of Investment Corp. shall be
cancelled. The consummation of the Offering and the consummation of the
Recapitalization and the transactions contemplated thereby will be
concurrent, and each is conditioned upon the other. Accordingly, prior
to the merger, Investment Corp. will be the issuer and will be obligated
under the Notes, and Unifrax will have no liability either under the
Notes or in connection with the Offering. Upon consummation of the
merger, Unifrax, as the surviving corporation, will be liable under the
Notes and in connection with the Offering to the same extent that
Investment Corp. was so liable prior to such merger.
6. Unifrax shall borrow $25.0 million under the Credit Agreement.
7. Unifrax shall pay Standard and BPX the Redemption Cash and shall pay the
fees and expenses of the transaction, estimated at $5.0 million.
Upon completion of the Recapitalization, Holding will own 90% of the common
stock of Unifrax and BPX will own 10% of the common stock of Unifrax. See "Risk
Factors -- Controlling Stockholder," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
Pursuant to the Recapitalization Agreement, BP America will indemnify
Holding and the Company, subject to certain limitations, against liabilities
arising from operations of the Company which were discontinued prior to the
Closing, liabilities for wrongful death or personal injury allegedly caused by
exposure, prior to the Closing, to refractory ceramic fiber products
manufactured by the Company, and certain environmental matters. See "Certain
Relationships and Related Transactions -- Relationship with BP and its
Subsidiaries -- Recapitalization Agreement."
Consummation of the Offering is conditioned upon the closing of the
Recapitalization. Closing of the Recapitalization is conditioned upon events set
forth in the Recapitalization Agreement, including Investment Corp.'s ability to
obtain financing.
19
<PAGE> 20
USE OF PROCEEDS
Aggregate consideration for the Recapitalization, the Non-compete Agreement
and related fees and expenses, of approximately $159 million (subject to a
decrease for changes in the net working capital of the Company) will be funded
with (i) a $25.0 million term loan under the Credit Agreement, (ii) the $100.0
million proceeds of the Offering, (iii) the $7.0 million BP Note, and (iv) the
$27.0 million Equity Investment.
The sources and uses of funds to consummate the Recapitalization and
related transactions are set forth in the following table:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Credit Agreement(a)........................................ $ 25.0
The Notes.................................................. 100.0
The BP Note................................................ 7.0
Equity Investment.......................................... 27.0
-------
Total Sources......................................... $ 159.0
========
USES OF FUNDS:
Payments to existing stockholder(b)........................ $ 144.0
Non-compete Agreement(c)................................... 10.0
Fees and expenses.......................................... 5.0
-------
Total Uses............................................ $ 159.0
========
<FN>
- ---------------
(a) The Credit Agreement will consist of a $25.0 million term loan and a
revolving credit facility of $20.0 million. The Company anticipates that no
amounts will be borrowed under the revolving credit facility to consummate
the Recapitalization. See "Description of Credit Agreement and Other
Indebtedness."
(b) The payments to the existing stockholder are made in consideration of the
redemption of shares of Unifrax and the sale of shares of Unifrax, and the
amount of the payments is subject to decrease based on changes in the net
working capital of the Company at the Closing. See "The Recapitalization."
(c) See "Certain Relationships and Related Transactions -- Relationship with BP
and its Subsidiaries -- Non-compete Agreement" for a description of the
Non-compete Agreement to be provided by BP to Holding.
</TABLE>
20
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1996 and as adjusted to reflect the Recapitalization. The
information given below is unaudited and should be read in conjunction with the
financial statements and the information under "Pro Forma Financial Data,"
including in each case the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
ACTUAL PRO FORMA
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Credit Agreement(a)........................................ $ -- $ 25,000
Notes...................................................... -- 100,000
The BP Note................................................ -- 7,000
-------- -------------
Total long-term debt......................................... -- 132,000
Parent company investment/Stockholders' equity (deficit)(b):
Common Stock............................................... -- --
Parent company investment/additional paid-in capital....... 37,115 31,493
Accumulated deficit........................................ -- (95,036)
-------- -------------
Total parent company investment/stockholders' equity
(deficit).................................................. 37,115 (63,543)
-------- -------------
Total capitalization......................................... $ 37,115 $ 68,457
======== ==========
<FN>
- ---------------
(a) The Credit Agreement will consist of a $25.0 million term loan and a
revolving credit facility of $20.0 million. The Company anticipates that no
amounts will be borrowed under the revolving credit facility to consummate
the Recapitalization. See "Description of Credit Agreement and Other
Indebtedness."
(b) The Company was historically accounted for as a division, with no separately
reported equity other than an amount equal to its net assets captioned as
"parent company investment," which included transactions of an intercompany
nature. In connection with the Recapitalization, (i) the amount of the
parent company investment, adjusted for the assets and liabilities to be
transferred to BP, will be reclassified as common stock, at par value, and
additional paid-in capital; (ii) 80 shares of stock out of 100 shares
outstanding, will be redeemed, which will result in an 80% elimination of
the amounts recorded as common stock and additional paid-in capital; (iii)
the amount of the redemption price in excess of the adjustment to common
stock and additional paid-in capital will be recorded as an accumulated
deficit; and (iv) the Company will recognize a deferred tax asset as a
result of the Recapitalization which will be recorded as additional paid-in
capital.
</TABLE>
21
<PAGE> 22
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data gives effect to the
Saint-Gobain Sale and the Recapitalization. See Notes 2, 7, and 17 to the
audited financial statements included herein.
The unaudited pro forma consolidated balance sheet of the Company as of
June 30, 1996 has been prepared after giving effect to the pro forma adjustments
described in the notes to the pro forma financial data. These adjustments have
been made assuming the transactions reflected in the pro forma consolidated
balance sheet had occurred on June 30, 1996.
The unaudited pro forma consolidated statements of income of the Company
for the year ended December 31, 1995 and the six months ended June 30, 1996 have
been prepared after giving effect to the pro forma adjustments described in the
notes to the pro forma financial data. These adjustments have been made assuming
the transactions reflected in the pro forma consolidated statements of income
had occurred on January 1, 1995.
The unaudited pro forma financial data set forth below is for informational
purposes only and may not necessarily be indicative of the financial position
and results of operations of the Company as they may be in the future or what
the financial position or results of operations of the Company would have been
had the transactions described above occurred on the dates indicated. The pro
forma adjustments are based upon available information and upon certain
assumptions that management of the Company believes are reasonable.
22
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ -- $ -- $ --
Accounts receivable, net.............................. 15,235 -- 15,235
Inventories........................................... 8,840 -- 8,840
Deferred income taxes................................. 2,769 307(a) 3,076
Prepaid expenses and other current assets............. 433 -- 433
-------- --------- ---------
Total current assets....................................... 27,277 307 27,584
Property, plant and equipment, net......................... 30,082 -- 30,082
Deferred income taxes...................................... -- 19,838(a) 19,838
Other assets............................................... 544 5,000(b) 5,544
-------- --------- ---------
$ 57,903 $ 25,145 $ 83,048
======== ========= =========
LIABILITIES, PARENT COMPANY INVESTMENT/STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 3,805 $ -- $ 3,805
Accrued expenses......................................... 8,110 (500)(c) 7,610
-------- --------- ---------
Total current liabilities.................................. 11,915 (500) 11,415
Long-term debt............................................. -- 125,000(d) 125,000
Note payable -- shareholder................................ -- 7,000(e) 7,000
Accrued postretirement benefit cost........................ 5,116 (2,340)(c) 2,776
Deferred income taxes...................................... 3,357 (3,357)(a) --
Other long-term obligations................................ 400 -- 400
-------- --------- ---------
Total liabilities.......................................... 20,788 125,803 146,591
Parent company investment/Stockholders' equity (deficit):
Common stock; $0.01 par value, 50,000 shares
authorized, 20,000 issued and outstanding pro
forma............................................... -- --(f) --
Parent company investment/Additional paid-in
capital............................................. 37,115 (5,622)(f) 31,493
Accumulated deficit................................... -- (95,036)(f) (95,036)
-------- --------- ---------
37,115 (100,658) (63,543)
-------- --------- ---------
$ 57,903 $ 25,145 $ 83,048
======== ========= =========
</TABLE>
See accompanying notes.
23
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Reflects the net deferred income tax effects of the Recapitalization. The
Recapitalization Agreement provides that an election will be made to have the
Recapitalization treated as an asset purchase for income tax purposes, with a
corresponding increase in the tax basis of assets. For financial reporting purposes, the
Company will retain its historical cost basis. The Company will recognize a related
deferred tax asset (net of a valuation allowance of $20,145) because, based upon the
Company's past history of profitability, management considers realization of this asset
to be more likely than not.
(b) Represents the financing fees associated with the Credit Agreement and the Notes.
(c) Reflects the assumption of certain obligations of the Company by BP America.
(d) Reflects borrowings by the Company as follows:
Credit Agreement.................................................. $ 25,000
Notes............................................................. 100,000
--------
125,000
Less current portion.............................................. --
--------
$125,000
========
(e) Reflects the issuance of the BP Note.
(f) The Company was historically accounted for as a division, with no separately reported
equity other than an amount equal to its net assets captioned as "parent company
investment" which included transactions of an intercompany nature. In connection with
the Recapitalization, (i) the amount of the parent company investment, adjusted for the
assets and liabilities to be transferred to BP, will be reclassified as common stock, at
par value, and additional paid-in capital; (ii) 80 shares of stock out of 100 shares
outstanding, will be redeemed, which will result in an 80% elimination of the amounts
recorded as common stock and additional paid-in capital; (iii) the amount of the
redemption price in excess of the adjustment to common stock and additional paid-in
capital will be recorded as an accumulated deficit; and (iv) the Company will recognize
a deferred tax asset as a result of the Recapitalization which will be recorded as
additional paid-in capital.
</TABLE>
24
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales......................................................... $ 84,064 $ (426)(a) $ 83,638
Operating expenses:
Cost of goods sold.............................................. 40,630 (36)(a) 40,594
Selling and distribution........................................ 11,579 487(a) 12,066
Administration.................................................. 6,189 2,680(b) 8,869
Allocated corporate charges..................................... 2,700 (2,700)(c) --
Research and development........................................ 2,450 -- 2,450
---------- ----------- ---------
63,548... 431 63,979
Operating income.................................................. 20,516 (857) 19,659
Interest expense.................................................. -- (13,316)(d) (13,316 )
Other income, net................................................. 932 (390)(a) 542
---------- ----------- ---------
Income before income taxes........................................ 21,448 (14,563) 6,885
Provision for income taxes........................................ 8,743 (5,971)(e) 2,772
---------- ----------- ---------
Net income........................................................ $ 12,705 $ (8,592) $ 4,113
========= =========== ==========
<FN>
(a) Reflects the impact of the Saint-Gobain Sale (see "Certain Relationships and Related
Transactions -- Relationship with SEPR") as follows:
i) elimination of sales to previously affiliated foreign ceramic fiber businesses
acquired by SEPR,
net of continuing sales as defined in the SEPR agreements............................ $ (426)
ii) cost of goods sold effect of (i) above............................................... (36)
iii) additional selling and distribution costs associated with the newly organized foreign
XPE(TM) sales affiliates in Germany and Brazil....................................... 487
iv) reduction in royalty payments received as a result of the Saint-Gobain Sale.......... (390)
(b) Reflects the following:
i) additional administration costs associated with the newly organized foreign XPE(TM)
sales affiliates in Germany and Brazil............................................... $ 250
ii) increased charges for insurance as a stand-alone company............................. 800
iii) increased pension expense............................................................ 351
iv) increased administration expenses to operate as a stand-alone company................ 500
v) advisory fee to Kirtland............................................................. 300
vi) amortization of deferred financing costs............................................. 780
vii) elimination of divestment related expenses........................................... (137)
viii) adjustment to interest costs for the postretirement benefit obligations retained by
BP................................................................................... (164)
-------
Total................................................................................ $ 2,680
========
(c) As a stand-alone company, the Company will no longer be charged an allocation of the costs
of the discontinued Carborundum worldwide group headquarters, including an allocation of
overhead charges from BP. Incremental costs of operating as a stand-alone entity are
reflected in (b)ii), (b)iv) and (b)v) above.
(d) Reflects the interest expense on the pro forma debt instruments as follows:
i) Credit Agreement(*).................................................................. $ 1,988
ii) Notes at an assumed interest rate of 10.75% per annum................................ 10,750
iii) BP Note at Prime (assuming Prime equals 8.25%)....................................... 578
-------
Total................................................................................ $13,316
========
* Reflects the term notes of $25,000 at an interest rate of 2.00% over LIBOR (assuming
LIBOR equals 5.75%) and a commitment fee of 0.25% on the unused portion of the
$20,000 available revolving credit facility, all of which is assumed to be unused.
Increasing LIBOR and Prime each by 1/8% per annum would increase pro forma interest expense
by $40.
(e) Income taxes, which include federal and state income taxes, have been calculated at an
effective income tax rate of 41%.
</TABLE>
25
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales......................................................... $ 45,192 $ (71)(a) $ 45,121
Operating expenses:
Cost of goods sold.............................................. 22,579 (6)(a) 22,573
Selling and distribution........................................ 6,418 81(a) 6,499
Administration.................................................. 3,429 1,002(b) 4,431
Allocated corporate charges..................................... 356 (356)(c) --
Research and development........................................ 1,121 -- 1,121
---------- ----------- ---------
33,903 721 34,624
---------- ----------- ---------
Operating income.................................................. 11,289 (792) 10,497
=========== ==========
Interest expense.................................................. -- (6,609)(d) (6,609 )
Other income (expense), net....................................... 43 (89)(a) (46 )
---------- ----------- ---------
Income before income taxes........................................ 11,332 (7,490) 3,842
========= =========== ==========
Provision for income taxes........................................ 4,697 (3,072)(c) 1,625
---------- ----------- ---------
Net income........................................................ $ 6,635 $ (4,418) $ 2,217
========= =========== ==========
<FN>
(a) Reflects the impact of the Saint-Gobain Sale (see "Certain Relationships and Related
Transactions -- Relationship with SEPR") as follows:
i) elimination of sales to previously affiliated foreign ceramic fiber businesses
acquired by SEPR,
net of continuing sales as defined in the SEPR agreement.............................. $ (71)
ii) cost of goods sold effect of (i) above................................................ (6)
iii) additional selling and distribution costs associated with the newly organized foreign
XPE(TM) sale affiliates in Germany and Brazil......................................... 81
iv) reduction in royalty payments received as a result of the Saint-Gobain Sale........... (89)
The pro forma adjustments for the six-month period ended June 30, 1996 reflect the
impact of the Saint-Gobain Sale through February 29, 1996. Subsequent to February 29,
1996, the historical results include the input of the Saint-Gobain Sale.
(b) Reflects the following:
i) additional administration costs associated with the newly organized foreign XPE(TM)
sales affiliates in Germany and Brazil................................................ $ 42
ii) increased charges for insurance as a stand-alone company.............................. 400
iii) increased pension expense............................................................. 172
iv) increased administration expenses to operate as a stand-alone company................. 200
v) advisory fee to Kirtland.............................................................. 150
vi) amortization of deferred financing costs.............................................. 390
vi) elimination of divestment related expenses............................................ (270)
vii) adjustment to interest costs for the postretirement benefit obligations retained by
BP.................................................................................... (82)
------
Total................................................................................. $1,002
======
(c) As a stand-alone company, the Company will no longer be charged an allocation for the costs
of the discontinued Carborundum worldwide group headquarters, including an allocation of
overhead charges from BP. Incremental costs of operating as a stand-alone entity are
reflected in (b)ii), (b)iv) and (b)v) above.
(d) Reflects the interest expense on the pro forma debt instruments as follows:
i) Credit Agreement(*)................................................................... $ 945
ii) Notes at an assumed interest rate of 10.75% per annum................................. 5,375
iii) BP Note at Prime (assuming Prime equals 8.25%)........................................ 289
------
Total................................................................................. $6,609
======
* Reflects the term notes of $25,000 (less scheduled repayments of $2,500 during the
period) at an interest rate of 2.00% over LIBOR (assuming LIBOR equals 5.75%) and a
commitment fee of 0.25% on the unused portion of the $20,000 available revolving
credit facility, all of which is assumed to be unused.
Increasing LIBOR and Prime each by 1/8% per annum would increase pro forma interest expense
by $19.
(e) Income taxes, which include federal and state income taxes, have been calculated at an
effective income tax rate of 41%.
</TABLE>
26
<PAGE> 27
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for the five years ended December 31, 1995 and for the six-month periods
ended June 30, 1995 and June 30, 1996. The historical data set forth below for
the years 1993, 1994, and 1995 have been derived from, and should be read in
conjunction with, the Company's audited financial statements and the notes
thereto appearing elsewhere in this Prospectus. The financial statements for the
years 1993, 1994, and 1995 have been audited by Ernst & Young LLP, independent
auditors, whose report thereon also appears elsewhere herein. The historical
financial data set forth below for 1992 have been derived from audited financial
statements which are not included herein. The historical financial data set
forth below for 1991 have been derived from unaudited financial statements of
the Company which, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. The historical financial data for the six-month
periods ended June 30, 1995, and June 30, 1996, have been derived from, and
should be read in conjunction with, the unaudited financial statements and the
notes of the Company for such periods which are also included herein. Such
financial statements reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Operating results for the six-month period ended June
30, 1996 are not necessarily indicative of the results to be expected for the
year ended December 31, 1996.
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, COMBINED(a)
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................ $53,540 $64,565 $67,692 $76,246 $84,064 $43,036 $45,192
Cost of goods sold....................... 27,620 33,099 34,153 37,590 40,630 20,803 22,579
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 25,920 31,466 33,539 38,656 43,434 22,233 22,613
Selling and distribution................. 9,462 10,370 9,932 10,688 11,579 6,064 6,418
Administration........................... 5,701 5,212 5,415 6,279 6,189 3,218 3,429
Allocated corporate charges(b)........... 2,900 2,600 2,800 2,300 2,700 1,350 356
Research and development................. 2,106 2,455 2,247 2,272 2,450 1,372 1,121
Restructuring charges.................... -- 480 155 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income......................... 5,751 10,349 12,990 17,117 20,516 10,229 11,289
Other income............................. 541 555 549 591 932 392 43
------- ------- ------- ------- ------- ------- -------
Income before taxes and cumulative
effect of change in accounting
principle............................ 6,292 10,904 13,539 17,708 21,448 10,621 11,332
Provision for income taxes............... 2,511 4,356 5,611 7,256 8,743 4,316 4,697
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting principle................ 3,781 6,548 7,928 10,452 12,705 6,305 6,635
Cumulative effect of change in accounting
principle.............................. -- -- (2,658)(c) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income............................... $ 3,781 $ 6,548 $ 5,270 $10,452 $12,705 $ 6,305 $ 6,635
======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA(d)................................ $ 9,515 $14,501 $17,510 $21,928 $25,749 $12,715 $13,287
Depreciation and amortization............ 3,223 3,597 3,971 4,220 4,301 2,094 1,955
Cash flows from operating
activities(g).......................... NA 9,347 10,172 11,324 18,925 8,040 8,141
Cash flows from investing
activities(g).......................... NA (3,571) (2,950) (2,578) (3,593) (1,169) (3,049)
Cash flows from financing
activities(g).......................... NA (6,049) (7,134) (8,743) (15,393) (6,858) (5,129)
Capital expenditures..................... 2,751 3,669 3,032 2,670 3,404 1,193 2,795
Ratio of earnings to fixed charges(e).... 75.90x 113.41x 124.08x 166.50x 165.98x 169.59x 172.70x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................... $11,103 $11,597 $13,583 $16,688 $14,763 $17,151 $15,362
Total assets............................. 53,453 54,327 55,105 56,897 54,239 56,668 57,903
Total liabilities........................ 15,414 15,888 18,634 18,943 18,815 19,136 20,788
Parent company investment(f)............. 38,039 38,439 36,471 37,954 35,424 37,532 37,115
<FN>
- ---------------
(a) Represents the combined data of Unifrax and the affiliated overseas sales
corporations created following the Saint-Gobain Sale.
</TABLE>
27
<PAGE> 28
(b) Certain administrative services and research and development activities were
provided to all businesses of Carborundum, including the Division, on a
centralized basis. Indirect administrative expenses were allocated to the
businesses either based on the level of service provided or based on the
overall cost structure of Unifrax. In the opinion of management of the
Company, charges and allocations have been determined on a reasonable basis;
however, they are not necessarily indicative of the level of expenses which
might have been incurred had the Company been operating as a stand-alone
entity.
(c) Represents the cumulative effect of a change in accounting principle made in
1993 related to the accounting for postretirement benefits other than
pensions.
(d) "EBITDA" means earnings from operations before interest expense, taxes,
depreciation, amortization, and cumulative effect of change in accounting
principle. EBITDA is included because management believes that it is an
indicator used by investors to gauge a company's ability to service its
interest and principal obligations. EBITDA should not be considered in
isolation from, as a substitute for, or as being more meaningful than net
income, cash flows from operating, investing and financing activities or
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles and should not be construed as an
indication of the Company's operating performance or as a measure of
liquidity. EBITDA, as presented herein, may be calculated differently by
other companies and, as such, EBITDA amounts presented herein may not be
comparable to other similarly titled measures of other companies.
(e) Earnings used in computing the ratio of earnings to fixed charges consist of
income from continuing operations before income taxes and cumulative effect
of a change in accounting principle plus fixed charges. Fixed charges
consist of interest expense, amortization of financing costs and imputed
interest on lease obligations.
(f) The Division was accounted for as a division of Carborundum rather than as a
subsidiary. The Division (prior to consummation of the Recapitalization) had
no separately identifiable equity other than an amount equal to its net
assets captioned as "parent company investment." In connection with the
Recapitalization, this investment will be eliminated and replaced by
stockholders' equity comprised of the Company's issued common stock at par
value and a residual amount of additional paid-in capital.
(g) Information is not available for 1991.
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<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the other
information set forth in this Prospectus, including the financial statements and
the notes thereto. The discussion herein refers to the actual historical
financial results of the Company. As a consequence of the Saint-Gobain Sale and
the Recapitalization, these results may not be comparable to future operating
results. See the notes to the audited financial statements included herein.
GENERAL
The Company is the leading North American manufacturer of ceramic fiber
with a market share in excess of 40% of the ceramic fiber sold in the North
American market, as measured by volume. Developed by the Company in 1942,
ceramic fiber is a white, glassy material belonging to a class of materials
known as man-made vitreous fibers. Ceramic fiber is sold to the furnace-related
market, the automotive market and several other niche markets. The Company's
sales and earnings from year-to-year reflect the relative strengths of these
markets as well as the product mix sold within any particular market.
Historically, the Company's sales growth has been driven by several
factors, including the use of ceramic fiber as a lower cost or higher
performance substitute for traditional hard brick refractories and other
insulating materials, the introduction of new ceramic fiber products and
applications and the general economic expansion of ceramic fiber markets. During
the four-year period ended December 31, 1995, the Company's net sales and EBITDA
increased at compound annual rates of approximately 12% and 28%, respectively.
During the three-year period ended December 31, 1995, the Company's cash
provided by operations, cash used in investing and cash used in financing
increased at compound annual growth rates of 27%, 0% and 37%, respectively. The
growth rate in EBITDA and cash provided by operations has exceeded the growth
rate in net sales during this period due to high profit margins resulting from
several factors, including a sales mix shift to higher value-added products,
improved manufacturing efficiency, higher capacity utilization and continued
control of marketing and administration costs. During each of the four years
ended December 31, 1995, the sales of products and applications which were
commercialized within the previous five years comprised over 20% of the
Company's net sales.
Prior to the Saint-Gobain Sale, the Company operated as a major division of
Carborundum. The Company operated autonomously; however, for efficiency,
Carborundum provided some support services, such as information systems, credit
and collections, payroll, corporate communications and health, safety and
environmental quality on a centralized basis. The Company was charged for these
services based on usage.
In addition, certain other indirect administration expenses of Carborundum,
such as legal, treasury and executive office, as well as certain research and
development activities directed more broadly at ceramic materials, were
allocated to the businesses (including the Company) either based on the level of
service provided or based on the overall cost structure of Carborundum. Amounts
allocated to the Company for such expenses are shown as "Allocated corporate
charges" in the Company's statements of income. In the opinion of management,
charges and allocations to the Company have been determined on a reasonable
basis; however, they are not necessarily indicative of the level of expenses
which might have been incurred had the Company been operating as a stand-alone
entity. In the future, the Company believes it will be able to obtain such
administrative services at comparable rates.
As a major business unit of Carborundum, the Company was closely tied to
Carborundum's other ceramic fiber operations in the United Kingdom, Germany,
Australia and Brazil. These non-North American units were generally dependent on
the Company for new product and process technology. Occasionally, the Company
relied upon overseas production capacity to fulfill North American demand.
The Recapitalization will be treated as an asset purchase for income tax
purposes, with a corresponding increase in the tax basis of assets. For
financial reporting purposes, the Company will retain its historical cost basis.
The Company will recognize a related deferred tax asset as management considers
realization of this asset to be more likely than not based upon the Company's
past history of profitability, expected future profitability and the extended
period over which the timing differences will reverse.
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<PAGE> 30
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 50.5 49.3 48.3 48.3 50.0
----- ----- ----- ----- -----
Gross profit............................... 49.5 50.7 51.7 51.7 50.0
Selling and distribution................... 14.7 14.0 13.8 14.1 14.2
Administration............................. 8.0 8.2 7.4 7.5 7.6
Allocated corporate charges................ 4.1 3.0 3.2 3.1 0.8
Research & development..................... 3.3 3.0 2.9 3.2 2.4
Restructuring charges...................... 0.2 -- -- -- --
----- ----- ----- ----- -----
Operating income........................... 19.2 22.5 24.4 23.8 25.0
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Net sales increased $2.2 million, or 5.0% from $43.0 million in 1995 to
$45.2 million in 1996. This increase was principally due to continued strong
demand for bulk, blanket, and module products in the furnace-related market, for
XPE(TM) in the automotive market, and for other niche market applications. The
increase was partially offset by lower sales of porosity-controlled paper. Lower
porosity-controlled paper sales resulted from one customer's decision to
purchase roll goods rather than finished product and another customer's
transition to a new driver-side airbag design which uses less ceramic fiber
paper.
Gross profit increased $0.4 million, or 1.7%, from $22.2 million in 1995 to
$22.6 million in 1996. This increase was the result of higher sales volume.
Gross profit margin decreased from 51.7% in 1995 to 50.0% in 1996. This decline
was due to outside purchases and resales of ceramic fiber blanket resulting from
capacity constraints at the Company's New Carlisle, Indiana facility.
Selling and distribution expenses increased $0.3 million, or 5.8%, from
$6.1 million in 1995 to $6.4 million in 1996. This increase resulted primarily
from the addition of XPE(TM) sales and distribution operations in Europe and
Brazil following the Saint-Gobain Sale, and the payment of sales incentives
earned by the sales force for record volumes. Selling and distribution expenses
as a percentage of net sales increased slightly from 14.1% in 1995 to 14.2% in
1996.
Administration expenses increased $0.2 million, or 6.6%, from $3.2 million
in 1995 to $3.4 million in 1996. This increase resulted primarily from the
addition of XPE(TM) selling and distribution operations in Europe and Brazil
following the Saint-Gobain Sale, and from various expenses associated with BP's
divestment of the Company. Administration expenses as a percentage of net sales
increased slightly from 7.5% in 1995 to 7.6% in 1996.
Allocated corporate charges decreased $1.0 million, or 74%, from $1.4
million in 1995 to $0.4 million in 1996. Allocated corporate charges for the
first half of 1995 were recognized for all six months of the period. Allocated
corporate charges were recognized for only two months of 1996, as the
Saint-Gobain Sale was completed on February 29, 1996. Subsequent to the sale,
the Company began purchasing services on an arm's length basis from unrelated
third parties, including temporary purchases from SEPR. The arm's length
purchases of services are included under "Administration." The arm's length
services purchased by the Company in March through June 1996 from SEPR totaled
$348 thousand and were at similar rates to those paid by the Company for
comparable services in January and February. Some previously allocated corporate
charges were replaced with other third party services, at rates generally equal
to or less than the allocations. Certain other allocated corporate charges were
not replaced and the corresponding services were provided by existing employees
within the Company.
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<PAGE> 31
Research and development expenses decreased $0.3 million, or 18%, from $1.4
million in 1995 to $1.1 million in 1996. This decrease was primarily due to the
timing of new product testing.
Operating income increased $1.1 million, or 10.4%, from $10.2 million in
1995 to $11.3 million in 1996. Operating income as a percentage of net sales
increased from 23.8% in 1995 to 25.0% in 1996 as a result of the factors
discussed above.
Net income increased $0.3 million, or 5.2%, from $6.3 million in 1995 to
$6.6 million in 1996. Net income as a percentage of net sales remained flat at
14.7% in 1995 and 1996. The slight increase in net income is due to the factors
discussed above.
EBITDA increased $0.6 million, or 4.5%, from $12.7 million in 1995 to $13.3
million in 1996. On a percentage of net sales basis, EBITDA decreased from 29.5%
in 1995 to 29.4% in 1996. The improvement in EBITDA is attributable to the
factors discussed above, despite a slight decrease in depreciation and
amortization of $0.1 million, or 6.6%, from $2.1 million in 1995 to $2.0 million
in 1996.
Capital expenditures in 1996 were $2.8 million and included projects to
improve efficiency, as well as add capacity in New Carlisle, Indiana. Working
capital, excluding cash and deferred taxes, declined from $14.4 million in 1995
to $12.6 million in 1996 due to lower receivables from the Carborundum overseas
units and higher trade payables and accruals in 1996.
Cash flows from operating activities increased $0.1 million, or 1.3%, from
$8.0 million in 1995 to $8.1 million in 1996 due to the higher net income and
lower working capital. Cash outflows from investing activities increased $1.8
million, or 160.8%, from $1.2 million in 1995 to $3.0 million in 1996 due to the
higher capital expenditures associated with the plant expansion in New Carlisle,
Indiana. Cash outflows from financing decreased $1.7 million, or 25.2%, from
$6.8 million in 1995 to $5.1 million in 1996, as the net cash flows were
transferred to the parent.
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales increased $7.9 million, or 10.3%, from $76.2 million in 1994 to a
record $84.1 million in 1995. This increase was principally due to strong demand
for bulk, blanket and module products in the furnace-related market and
significant demand for porosity-controlled paper and XPE(TM) in the automotive
market. The Company achieved record sales in 1995, despite its discontinuation
of a resale product purchased from a former BP-owned business unit which
accounted for $4.2 million of the Company's net sales in 1994.
Gross profit increased $4.7 million, or 12.4% from $38.7 million in 1994 to
$43.4 million in 1995. This increase was the result of higher sales of
value-added products. Specifically, gross profit margin increased from 50.7% in
1994 to 51.7% in 1995 due to increased sales of high margin products and ongoing
cost reductions, despite price increases in raw materials. The Company's
manufacturing cost reduction programs largely offset increases in purchased
materials and labor costs.
Selling and distribution expenses increased $0.9 million, or 8.3%, from
$10.7 million in 1994 to $11.6 million in 1995. This increase resulted primarily
from higher warehousing and freight expenses associated with the Company's
increased sales. Selling and distribution expenses as a percentage of net sales
decreased from 14.0% in 1994 to 13.8% in 1995.
Administration expenses decreased $0.1 million, or 1.4%, from $6.3 million
in 1994 to $6.2 million in 1995. In addition, administration expenses as a
percentage of net sales decreased from 8.2% in 1994 to 7.4% in 1995.
Allocated corporate charges increased $0.4 million, or 17.4%, from $2.3
million in 1994 to $2.7 million in 1995. This increase resulted primarily from
higher costs recorded by Carborundum for a BP stock appreciation rights program.
Research and development expenses increased $0.2 million, or 7.8%, from
$2.3 million in 1994 to $2.5 million in 1995. This increase was due to new
product development projects, including a new fiber
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<PAGE> 32
development project and the transfer of two Carborundum research and development
projects to the Company.
Operating income increased $3.4 million, or 19.9%, from $17.1 million in
1994 to $20.5 million in 1995. Operating income as a percentage of net sales
increased from 22.5% in 1994 to 24.4% in 1995 as a result of the factors
discussed above.
Net income increased $2.3 million, or 21.6%, from $10.4 million in 1994 to
$12.7 million in 1995. Net income as a percentage of net sales increased from
13.7% in 1994 to 15.1% in 1995, due to the factors discussed above.
EBITDA increased $3.8 million, or 17.4%, from $21.9 million in 1994 to
$25.7 million in 1995. As a percentage of net sales, EBITDA increased from 28.8%
in 1994 to 30.6% in 1995. The improvement in EBITDA is attributable to the
factors discussed above, in addition to an increase in depreciation and
amortization of $0.1 million, or 1.9% from $4.2 million in 1994 to $4.3 million
in 1995.
Capital expenditures in 1995 were $3.4 million and were principally
designed to eliminate manufacturing bottlenecks and to improve efficiency.
Year-end working capital, excluding cash and deferred taxes, declined from $13.8
million in 1994 to $12.3 million in 1995 due primarily to lower receivables from
the Carborundum overseas units and higher year-end trade payables. Terms of
collection with the other Carborundum affiliates were shortened at year-end 1995
in anticipation of the Saint-Gobain Sale.
Cash flows from operating activities increased $7.6 million, or 67.1%, from
$11.3 million in 1994 to $18.9 million in 1995 due to the higher net income and
lower working capital. Cash outflows from investing activities increased $1.0
million, or 39.4%, from $2.6 million in 1994 to $3.6 million in 1995 due to the
higher capital expenditures discussed above. Cash outflows from financing
activities increased $6.7 million, or 76.1%, from $8.7 million in 1994 to $15.4
million in 1995, as the net cash flows were transferred to the parent.
YEAR ENDED DECEMBER 31, 1994, COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales increased $8.5 million, or 12.6%, from $67.7 million in 1993 to
$76.2 million in 1994. This increase was principally due to strong demand for
bulk fiber and blanket from the furnace-related markets and for
porosity-controlled paper and XPE(TM) from the automotive markets.
Gross profit increased $5.2 million, or 15.3%, from $33.5 million in 1993
to $38.7 million in 1994. At the same time, gross profit as a percentage of net
sales increased from 49.5% in 1993 to 50.7% in 1994. This increase was primarily
the result of a sales mix shift to high value-added products, manufacturing cost
reduction programs and improved manufacturing efficiencies due to increased
volume. Raw materials prices remained relatively flat in 1994.
Selling and distribution expenses increased $0.8 million, or 7.6%, from
$9.9 million in 1993 to $10.7 million in 1994. This increase was due to higher
warehousing and freight costs, a larger advertising campaign and the addition of
employees to support new product opportunities associated with the increase in
net sales. However, selling and distribution expenses as a percentage of net
sales decreased from 14.7% in 1993 to 14.0% in 1994.
Administration expenses increased $0.9 million, or 16.0%, from $5.4 million
in 1993 to $6.3 million in 1994, while administration expenses as a percentage
of net sales increased from 8.0% in 1993 to 8.2% in 1994. This increase was
primarily the result of higher spending on consultants.
Allocated corporate charges decreased $0.5 million, or 17.9%, from $2.8
million in 1993 to $2.3 million in 1994. This decrease was largely attributable
to restructuring within Carborundum in 1993.
Research and development expenses increased $0.1 million, or 1.1%, from
$2.2 million in 1993 to $2.3 million in 1994 as inflationary cost increases were
offset by lower spending in a variety of areas.
Operating income increased $4.1 million, or 31.8%, from $13.0 million in
1993 to $17.1 million in 1994. Operating income as a percent of net sales
increased from 19.2% in 1993 to 22.5% in 1994 as a result of the factors
discussed above.
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<PAGE> 33
Net Income increased $5.2 million, or 98.3%, from $5.3 million in 1993 to
$10.5 million in 1994. Net income as a percentage of net sales increased from
7.8% in 1993 to 13.7% in 1994, due to the factors discussed above.
EBITDA increased $4.4 million, or 25.2%, from $17.5 million in 1993 to
$21.9 million in 1994. As a percentage of net sales basis, EBITDA increased from
25.9% in 1993 to 28.8% in 1994. The improvement in EBITDA is attributable to the
factors discussed above, in addition to an increase in depreciation and
amortization of $0.2 million, or 6.3% from $4.0 million in 1993 to $4.2 million
in 1994.
Capital expenditures of $2.7 million in 1994 were primarily for
maintenance, process cost reduction and efficiency projects.
Cash flows from operating activities increased $1.1 million, or 11.3%, from
$10.2 million in 1993 to $11.3 million in 1994 due to the higher net income
offset in part by higher working capital as a result of the sales increase. Cash
outflows from investing activities decreased $0.4 million, or 12.6%, from $3.0
million in 1993 to $2.6 million in 1994 due to the lower capital expenditures.
Cash outflows from financing activities increased $1.6 million, or 22.6%, from
$7.1 million in 1993 to $8.7 million in 1994, as the net cash flows were
transferred to the parent.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $10.2 million, $11.3 million
and $18.9 million for years 1993, 1994 and 1995, respectively. Cash flows in
1993 and 1994 were affected by increases in year-end accounts receivable
associated with stronger fourth quarter sales. Accounts receivable at year-end
1995 were $1.4 million lower than at year-end 1994 due primarily to lower
receivables from the Carborundum overseas units. Terms of collection with the
other Carborundum affiliates were shortened at year-end in anticipation of the
closure of the agreement between BP and SEPR for the purchase of Carborundum.
Inventories increased in 1994 to support the increasing sales volume.
Historically, the Company used cash from operating activities to fund its
capital expenditure needs. Capital expenditures were $3.0 million, $2.7 million
and $3.4 million for years 1993, 1994 and 1995, respectively. Capital
expenditures included projects to replace worn equipment, to reduce
manufacturing costs and to eliminate production bottlenecks.
BP historically performed all treasury functions on behalf of the Company.
As a result, the Company relied on BP for short-term financing. Over the past
three years, the Company generated cumulative cash transfers to BP of $31.3
million, of which $15.4 million was attributable to 1995. The Company has
established its own cash management system to meet its daily cash management
needs and will maintain independent banking relationships.
Concurrent with the Offering, the Company expects to enter into a Credit
Agreement pursuant to which the Company will have available to it a $25.0
million term loan and a $20.0 million revolving credit facility. The revolving
credit facility will be undrawn at the Closing. The revolving credit facility
will be available for working capital and other corporate purposes. Loans under
the Credit Agreement will bear interest at a rate based upon LIBOR or the
lender's prime rate plus a negotiated margin. Both the Indenture and the Credit
Agreement will contain certain restrictive covenants including requirements that
the Company meet certain financial ratio tests and limitations on the ability of
the Company to incur additional indebtedness. The proceeds of the Offering will
be used by the Company to redeem 80% of the stock of the Company from BP.
Following consummation of the Recapitalization, the Company will have a
significant increase in debt service requirements over historical levels due to
its borrowings under the Credit Agreement and the Notes. Management believes
that cash flow from operations, together with available borrowings under the
revolving credit facility, will be sufficient to carry on its business for the
foreseeable future and to meet its debt service, capital expenditures and other
liquidity requirements. See "Description of Credit Agreement and Other
Indebtedness -- Credit Agreement."
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<PAGE> 34
The Company has budgeted approximately $9.7 million for capital
expenditures in 1996, including expenditures for its capacity expansion at the
New Carlisle, Indiana facility. The total cost of the capacity expansion is
estimated at $14.4 million, which consists of $13.7 million of capitalized
expenditures and $0.7 million of related period costs.
As part of its product stewardship program the Company anticipates spending
between $2.0 and 3.0 million over approximately two years for health studies to
develop new types of ceramic fibers. Spending is anticipated to commence once
new fiber development is completed and test protocols are established, projected
to occur during 1997.
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<PAGE> 35
BUSINESS
The Company is the leading North American manufacturer of ceramic fiber
with a market share in excess of 40% of the ceramic fiber sold in the North
American market, as measured by volume. Developed by the Company in 1942,
ceramic fiber is a white, glassy material belonging to a class of materials
known as man-made vitreous fibers (a class which also includes fiberglass and
mineral wool). Ceramic fiber possesses several commercially attractive
performance properties including stability at very high temperatures, extremely
low heat transmission and retention, light weight compared to other
heat-resistant materials, chemical stability and corrosion resistance. These
properties make ceramic fiber a superior insulating material in high temperature
applications.
Ceramic fiber's most common application has been to line industrial
furnaces, where high temperatures demand its heat-resistant characteristics.
Historically, the industrial furnace-related market has represented the largest
percentage of the Company's sales. While maintaining its strong position in this
traditional market, the Company's strategy has been to apply its expertise to
rapidly-growing, high value-added niche markets. These niche markets, which
include automotive (products such as airbag inflation filters and catalytic
converter gaskets), power generation (products such as steam boiler insulation,
duct wrap and stack linings), and fire protection (products such as commercial
kitchen exhaust duct wrap and cable trays), now account for the majority of the
Company's net sales. For the year ended December 31, 1995, approximately 44% of
the Company's net sales were derived from furnace-related markets, 31% from
automotive-related markets, and 25% from other markets. During each of the four
years ended December 31, 1995, sales of new products and applications (those
commercialized within the previous five years) represented over 20% of the
Company's net sales.
During the four-year period ended December 31, 1995, the Company's net
sales and EBITDA increased at compound annual growth rates of 12% and 28%,
respectively. During this period, the growth in EBITDA exceeded the growth in
sales due to a shift in the sales mix to higher margin products, improvements in
manufacturing efficiency, increased capacity utilization rates, and continued
control of marketing and administrative costs.
COMPETITIVE STRENGTHS
The Company has the following strengths which provide competitive
advantages in the North American ceramic fiber market.
Broad Product Line. The Company manufactures one of the broadest lines of
ceramic fiber products sold in the North American market. The Company's ceramic
fiber is produced in numerous forms, including bulk fiber, blankets and modules,
boards, papers and felts, textiles and a variety of other high value-added
products. These products are used in thermal management applications where heat
resistance, light weight and low heat transmission and retention are required.
Product Innovation. The Company has demonstrated the ability to introduce
successful, high value-added products and applications for both traditional and
niche markets.The Company's product leadership can be attributed to its close
relationship with its customers and its extensive research and development
efforts. These new products have been sold in the furnace-related markets as
well as in high-growth niche markets for both existing and new applications.
Examples of successful new product introductions include porosity-controlled
paper used as a filter in automotive airbag inflators, expandable paper (known
as XPE(TM)) used as a gasket in catalytic converters, easy-to-install Anchor-Loc
2(R) furnace modules and Insulfrax(R) furnace blanket which uses a new fiber
chemistry.
Strong Customer Relationships. Long-term customer relationships with
distributors as well as end-use customers have been an important factor in the
Company's success. Of the Company's top 10 distributors in 1995, the majority
have represented the Company for over 10 years and a substantial number have
been distributors for the Company for more than 20 years. A significant number
of end-use customers have also been purchasing products from the Company for
extended periods of time. For example, in the furnace-related market, most of
the Company's current customers have been purchasing products for at least 5
years, many for
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<PAGE> 36
over 10 years and several for over 20 years. In many situations, especially in
the case of the automotive market, customers recognize that they must depend on
a particular supplier for an extended period and consequently exercise
considerable care in the supplier selection process. The Company's products are
currently specified in numerous automotive applications, such as airbag
inflators, which require "zero defect" components. By successfully meeting such
stringent requirements, the Company is recognized as a reliable supplier, and
has developed solid relationships with its customers.
Recognized Quality. The Company's products have received repeated
recognition for high quality and excellent capability, including eight
consecutive Chrysler Pentastars, an award which Chrysler bestows on only the top
2% of its suppliers. The Company also expects its Tonawanda facility to receive
certification under QS-9000, the quality standard for GM, Ford and Chrysler
suppliers, early in 1997.
Low Cost Manufacturing. The Company's manufacturing strategy has
consistently emphasized investment in capital equipment and process engineering
improvements designed to increase efficiency and lower manufacturing costs. The
Company believes it has the industry's most advanced fiber manufacturing
technology and has obtained the scale of operations necessary to protect its
position as a low cost manufacturer in the North American market.
BUSINESS STRATEGY
The Company's business objective is to increase earnings by expanding its
leadership position in niche markets while maintaining its market position in
furnace-related markets. To meet this objective, the Company will continue to
focus research and development efforts on the creation of new niche products and
applications, and will add needed capacity at its New Carlisle, Indiana facility
to maintain its position as a low cost producer of bulk fiber and blanket. In
addition, the Company has developed the industry model for product stewardship,
and will continue to lead the industry's effort on such programs.
New Products and Markets. By combining its market knowledge and strong
customer relationships with its technical expertise, the Company has
successfully introduced a wide variety of new products. During each of the past
four years, new products and applications (those commercialized within the
previous five years) have accounted for over 20% of the Company's net sales.
These new products have been sold for use in existing and new applications to
both the furnace-related and high-growth niche markets, and many are designed
and qualified to meet specialized customer requirements. The Company's
cumulative research and development expenses were $9.4 million for the four
fiscal years ended December 31, 1995 and the Company expects such expenses to be
$2.5 million in 1996. The Company plans to continue to dedicate substantial
resources to its new product development programs and expects new products to
continue to drive the Company's long-term growth.
Continued Cost Reduction and Productivity Enhancements. The Company's
current management team has a successful track record of achieving cost
reductions and will continue these efforts. By concentrating its furnacing
operations primarily at one location, the Company believes that it has developed
the industry's most advanced fiber manufacturing technology and has obtained the
scale of operations necessary to protect its position as a low cost manufacturer
in the North American market. The Company spent $12.8 million in total capital
expenditures for the four fiscal years ended December 31, 1995. The Company
anticipates spending $9.7 million in 1996, including construction in progress
under a $13.7 million furnace expansion program to be completed in 1997. This
furnace expansion is designed to provide needed capacity and flexibility and to
further reduce manufacturing costs.
Leadership in Product Health and Safety. Man-made fibers such as ceramic
fiber, fiberglass and mineral wool have been categorized as "possibly
carcinogenic in humans" and "probably carcinogenic in humans" by various
government agencies and health organizations. The Company has been the
industry's leader with respect to management of potential health and product
safety issues associated with ceramic fiber. Specifically, the Company has
established systems to identify and reduce potential adverse health effects, if
any, associated with its products. The Company works actively with its employees
and customers to reduce
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<PAGE> 37
workplace exposure through improved product handling procedures. In addition,
the Company has been active in developing new types of industrial fibers with
physical and chemical properties that may help to reduce the potential risks
associated with ceramic fiber.
PRODUCTS AND APPLICATIONS
As an integrated ceramic fiber manufacturer, the Company manufactures and
markets one of the broadest lines of ceramic fiber products sold in North
America. Ceramic fiber was developed by the Company in 1942 and was identified
as a material with commercially attractive performance properties. In the 1950s,
ceramic fiber refractories (heat resistant materials) began to replace
traditional brick linings in furnace applications. Ceramic fiber is an efficient
insulator, typically reducing energy consumption by 20% to 30% compared to
substitute materials such as hard brick refractories. Fiber usage increased
slowly until the 1970s when the oil crisis created a surge in worldwide demand
for energy-saving devices and technology. Because of its insulating properties,
ceramic fiber came into wide use in a variety of energy-saving applications.
Today, it is produced in the form of bulk fiber, blankets, modules, papers,
felts, boards and textiles. New products include engineered fibers for brake
linings, duct wrap and other fire protection products, XPE(TM) for catalytic
converters and porosity-controlled paper used as a filter for automotive airbag
inflators.
Bulk Ceramic Fiber. The Company manufactures and sells several types of
ceramic fiber in bulk form in order to meet a wide range of requirements for
heat resistance, chemical composition and fiber dimension and strength. The
Company has sophisticated process controls which are essential to meeting its
customers' precise product specifications. Bulk ceramic fiber is sold to
fabricators of a variety of heat-resistant and insulating products such as
vacuum-cast shapes, and is also sold for use in a number of packing,
reinforcement, filtration, and filler applications. Bulk ceramic fiber is also
the base material for substantially all of the Company's other products. Bulk
ceramic fiber is sold under the Fiberfrax(R), Insulfrax(R), and Fibermax(R)
trade names.
Blankets and Modules. The Company's blanket products begin as bulk fiber
which, through a needling process, is woven into a strong, flexible, durable
blanket. These blankets are preferred over traditional hard brick in a variety
of high temperature applications, including kiln and furnace linings and
expansion joint seals used for fire protection in commercial construction.
Modules are folded or laminated from layers of ceramic fiber blanket which are
compressed into rectangular "blocks" which can be secured to furnace interiors
through a variety of hardware options. The Company has developed a modular
lining system under the Anchor-Loc 2(R) brandname that has a unique anchoring
hardware and blanket lamination technique which makes it both easy to install
and simple to maintain.
Boards. The Company's board products consist of a group of rigid,
self-supporting, light-weight and easy to cut insulating boards well-suited for
applications involving mechanical vibration and/or stress at high temperatures.
These qualities facilitate handling and installation in a variety of industrial
applications, including use as refractory linings, backup for other furnace
insulating materials, rigid gaskets and seals. Ceramic fiber boards are sold
under the Duraboard(R) brand name.
Papers and Felts. The Company offers the broadest line of ceramic fiber
papers and felts available in the industry. The automotive industry is the
Company's largest market for ceramic fiber papers and has purchased these
products primarily in two forms: porosity-controlled paper and XPE(TM).
Porosity-controlled paper is an integral component of automotive airbag
inflators in which the ceramic fiber filters the hot gases released during the
inflation process. XPE(TM) is used as a gasket or seal around the core ceramic
component of catalytic converters where the catalytic reaction occurs. By
forming this seal, XPE(TM) forces exhaust gases through the catalyst, and at the
same time acts as an insulating support between the core and the metal housing.
Both of these automotive applications are highly engineered to meet stringent
manufacturer specifications. The Company's ceramic fiber-based papers are also
used in a variety of high temperature applications in the aerospace, appliance,
ceramic and glass, petrochemical, and steel industries. The Company also
manufactures felts that can be fabricated into both rigid and flexible shapes.
Felts are used in applications such as automotive and aerospace heat shields,
appliance insulation and gaskets.
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<PAGE> 38
Textiles. The Company uses traditional textile manufacturing techniques to
produce ceramic fiber yarn (Fiberfrax(R) yarn) which is, in turn, used to make
cloth, rope, braids, wicking, tapes, and sleevings. Textiles provide superior
insulation and possess excellent resistance to heat, corrosion, and breakdown
due to mechanical vibration and stress. Textiles are used as gaskets, wrapping
materials, and welding curtains and blankets.
Other Products. The Company also manufactures specialty products in the
form of moldables, pumpables, caulks and coating cements, fabricated products,
ultra high temperature products and engineered fibers. Specialty products are
typically injected or applied to furnace and boiler hot spots, furnace lining
cracks, furnace door jambs, areas around pipe and cable penetration points, and
other hard-to-insulate areas. Fabricated products are typically composite
systems which consist of a ceramic fiber core material encapsulated in foil,
textile, or other high temperature material by quilting, laminating, or other
bonding techniques. Fabricated products are used as fire protection materials
for commercial construction including grease, HVAC, and exhaust ducts. Ultra
high temperature products are used as linings for steel reheat furnaces, forge
furnaces, and in ultra high temperature ceramic kilns. The Company also produces
engineered fibers for applications in the coatings or friction market where
fiber size, diameter, and chemistry must meet precise technical specifications.
SALES AND MARKETING
The Company uses a combination of distributors, direct sales and
multi-functional teams to reach its markets. Sales channels vary from market to
market and between regions within markets depending upon the availability of
local distributors and the particular customer's needs.
In some markets, customer purchasing decisions are based largely on price
and service. In these markets, the Company uses its high-volume capabilities to
produce the lowest cost fiber products while relying on its distributors to meet
local customer service needs. These distributors provide sales, warehousing,
engineering, and design support for the Company's products. Working with the
Company's field sales engineers and customer service personnel, the distributors
provide a cost-effective method of servicing the market for these products,
while meeting the customers' need for rapid delivery, and local service and
support.
For more highly engineered applications, customers tend to base purchasing
decisions on a supplier's technical knowledge, process capabilities, and quality
assurance systems. These customers are more concerned with product performance
characteristics, process control and quality which meet their exacting
specifications. In these situations, the Company utilizes direct selling and/or
multi-functional teams comprised of sales, technical, manufacturing, and quality
assurance professionals. Multi-functional teams provide solutions to complex
customer problems while promoting the Company's product design, process control,
and quality assurance capabilities. The use of such teams also accelerates new
product introduction by reducing the time from concept to commercialization.
Aside from managing these distribution channels, the Company's sales and
marketing organization also has responsibility for identifying new product
opportunities, maintaining effective customer service and developing and
coordinating communications and advertising in trade publications.
The Company motivates its sales and marketing organization through sales
incentive payout programs focusing on three key objectives: sales volume growth,
new product application and development, and achievement of specific,
strategically important targets.
MARKETS
In North America, the most common historical application for ceramic fiber
has been to line industrial furnaces, where high temperature processes require
ceramic fiber's heat-resistant characteristics. Over the past several decades,
ceramic fiber has replaced traditional refractory linings in many types of
furnaces providing longer lasting and higher performance insulating capability
for applications in the petrochemical, metals production, and ceramic and glass
industries. In these markets, ceramic fiber is principally used for insulating
furnaces, heaters and kilns and for other high temperature applications. Newer
applications generally rely on
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<PAGE> 39
ceramic fiber's heat-resistant characteristics combined with other compositional
and dimensional qualities to satisfy more highly engineered requirements.
Examples of these newer applications include porosity-controlled paper for
automotive airbag inflators and duct wrap systems used as passive fire
protection in commercial construction.
While maintaining its strong position in traditional furnace-related
markets, the Company's objective is to strengthen its leadership position in
more specialized niche markets. The Company has used its strong position and
technical expertise in the furnace-related markets to expand into these high
growth niche markets. These niche markets include automotive (airbag inflation
filters and catalytic converter gaskets), power generation (steam boiler
insulation, duct wrap and stack linings), and fire protection (commercial
kitchen exhaust duct wrap and cable trays).
The following table sets forth a breakdown of the Company's net sales
between the furnace-related, automotive and other markets for the five years
ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market
Furnace-related $30.3 57% $35.8 55% $33.9 50% $35.8 47% $36.9 44%
Automotive 9.6 18 12.9 20 16.9 25 21.9 29 26.4 31
Other 13.6 25 15.9 25 16.9 25 18.5 24 20.8 25
----- --- ----- --- ----- --- ----- --- ----- ---
Total $53.5 100% $64.6 100% $67.7 100% $76.2 100% $84.1 100%
===== === ===== === ===== === ===== === ===== ===
</TABLE>
As a result of the covenant not to compete entered into with SEPR, the
Company is prohibited from manufacturing, selling or distributing any products
outside the North American market until March 1, 2001 except XPE(TM) which the
Company will sell worldwide and certain products for which SEPR will act as
distributor. However, Company management believes that significant opportunities
exist within North America to expand the company's sales and profits.
Furnace-Related Markets. Ceramic fiber for furnace-related applications is
generally sold to the metal production, petrochemical, and ceramic and glass
industries.
The Company believes the metal production industry is the largest consumer
of ceramic fiber. The Company sells bulk fiber, blankets, modules, and textiles
to this market where these products are used as furnace linings, molten metal
transfer trough linings, seals and gaskets, and heat and splash shields. Demand
in the metal production industry historically has been linked to general
economic conditions, the rate of new furnace capacity expansions and the
response to higher energy costs.
The petrochemical industry uses ceramic fiber blankets and modules in
furnace, flue and stack linings, and as removable pads and covers in oil
refining, chemical production, and steam generation. The Company typically sells
pursuant to significant project-sized orders, which are placed by furnace OEMs,
engineering firms, or local refractory contractors. Demand in this industry
historically has been linked to energy costs, general economic conditions, and
the rate of new capacity expansion in the petrochemical industry.
The ceramic and glass industry uses ceramic fiber products in furnace
linings, as backup insulation for, and as separators in, the production of
brick, structural clay, whiteware, technical ceramics, hard refractories, and
glass. The Company generally sells blankets and modules, textiles, and papers
and felts into this market. The ceramic and glass industry is highly fragmented
with many small to moderate-sized customers. Demand in this market historically
has been linked to general economic conditions, the rate of furnace relining or
overhaul in the ceramic and glass industries, and the response to higher energy
costs.
Automotive Market. Three product types account for substantially all of
the fiber consumed by the automotive industry: porosity-controlled paper used in
airbag inflators, XPE(TM) gasket material used in catalytic converters, and
insulation material used in engine heat shields. In 1995, approximately 11% of
the Company's
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<PAGE> 40
net sales represented direct or indirect purchases of porosity-controlled paper
by TRW Inc. No other customer of the Company accounted for more than 10% of the
Company's net sales in 1995.
The Company believes it is the leading producer of porosity-controlled
paper used in the inflator modules of automotive airbags. The Company expects
continued growth in the demand for airbags as domestic and international airbag
usage increases and as more airbags are contained in each vehicle. However, the
primary technology for airbag inflators is presently based upon the use of
sodium azide as the propellant used to inflate the airbag. The Company believes
that sodium azide technology may be gradually displaced in new car designs by
one or more alternative technologies which may or may not use the Company's
porosity-controlled paper. As new car models are designed, alternative
technologies existing or being developed may replace the Company's ceramic based
fiber paper, leaving the Company with a smaller potential market for its
products. See "Risk Factors -- Dependence on Product Line."
The Company also supplies XPE(TM) for use in automotive catalytic
converters. The Company expects continued growth in XPE(TM) sales resulting from
the ongoing regulatory initiatives to reduce emissions. Much of this growth is
expected to come from international sales as more nations require cleaner
automobile emissions. In connection with the Saint-Gobain Sale, the Company
established overseas sales and distribution channels to service the worldwide
XPE(TM) market. SEPR has the right to take up a royalty-free, non-exclusive
license to manufacture and sell XPE(TM) outside the North American market in
competition with the Company. See "Risk Factors -- Dependence on Raw Material
Supplier" and "Certain Relationships and Related Transactions -- Relationship
with SEPR."
The Company also sells a number of other products to the automotive
industry. Examples of these products include bulk ceramic fiber and felts for
use in automotive friction components, preforms for piston crown reinforcement
and heat shields, where ceramic fiber provides improved performance
characteristics.
Other Markets. Ceramic fiber is being used in several newer applications
in niche markets such as power generation, fire protection, and commercial
insulation. In these industries, products are often customized to meet special
customer needs.
The power generation industry uses a variety of ceramic fiber products in
steam turbine duct linings. Ceramic fiber is also applied in package boilers
used in schools, hospitals and other institutions. Demand in the power
generation market historically has been linked to general economic conditions
and the rate of power consumption, but in recent years has been aided by
legislation and deregulation supporting the growth of independent power
producers.
The fire protection industry includes transportation (railroad tank cars,
aerospace, hazardous materials), commercial construction (venting and exhaust
ducts, expansion joints, penetration seals), industrial construction (cable
trays, valve covers) and manufactured products (safes, file cabinets, wood stove
flues). Demand in the fire protection market historically has been linked to
general economic conditions, the level of commercial and institutional
construction, greater safety legislation, changes in building codes, enforcement
levels for stationary applications, more stringent regulations for mobile
applications, and the level of bulk transportation vehicle production.
The commercial insulation market includes sales to manufacturers of
domestic furnace combustion chambers, commercial ovens, laboratory hot plates,
furnaces, and small firing kilns. The Company typically sells bulk fiber,
blankets, modules, boards, papers and felts to this market. Demand in the
commercial insulation market historically has been linked to the response to
higher energy costs and to more stringent appliance design requirements.
MANUFACTURING AND OPERATIONS
Ceramic fiber is produced by melting a combination of alumina, silica, and
other additives in either a submerged electrode furnace (SEF) or in an electric
arc furnace. The molten mixture is made into fiber either by blowing an air
stream on the molten material flowing from the furnace (blowing process) or by
directing the molten material onto a series of spinning wheels (spinning
process). The blowing and spinning processes produce fiber with different
characteristics, dimensions, and process yields. These variations translate into
a
40
<PAGE> 41
wide variety of products that rely on specific fiber characteristics to achieve
an application's performance requirements.
The Company also employs advanced manufacturing processes associated with
the "wet" manufacture of papers and felts, boards, and other products. These
processes use bulk ceramic fiber as a feedstock in combination with binders or
other liquids which are then passed over a device similar in function to those
used in the paper industry. The Company's use of specialized process control
technology and computer-aided production allow it to meet precise tolerances and
demanding customer requirements.
Although the Company purchases some of its raw materials from sole
suppliers, almost all of these materials are readily available from other
suppliers on similar terms. The major exception is vermiculite, a mineral which
is an important raw material in the manufacture of XPE(TM) which is used in
automotive catalytic converters. The Company currently purchases approximately
one-half of its requirements of vermiculite from one supplier in China and the
other half from a U.S. supplier. Because vermiculite from the Chinese source has
superior performance qualities, the Company believes that over the next two to
three years, both it and its competitors will become increasingly reliant on the
Chinese source. The Chinese source is expected to become dominant because of the
vermiculite's performance. Although the Company is attempting to identify
additional sources, at the present time, no additional source of vermiculite
with comparable performance qualities has been located, and if such a source is
located in the future, there can be no assurance that supplies can be obtained
from such source on the same terms and conditions as are obtained from the
current supplier. Any significant interruption in the supply of vermiculite for
an extended period of time could have a material adverse effect on the financial
condition and results of operations of the Company. During the year ended
December 31, 1995, the Company's sales of XPE(TM) represented approximately 10%
of the Company's net sales. See "Business -- Markets," and "Business --
Manufacturing and Operations." The Company also benefits from a long-term
purchase contract with the Power Authority of the State of New York which
permits the Company to purchase electricity for its Western New York plants at
favorable rates until 2006.
By concentrating its furnacing operations primarily at one location, the
Company believes that it has developed the industry's most advanced fiber
manufacturing technology and has obtained the scale of operations necessary to
protect its position as a low cost manufacturer in the North American market. In
the balance of its operations, the Company has created low volume, flexible
facilities designed for rapid commercialization of new products. This
two-pronged manufacturing strategy has resulted in lower costs, greater variety,
higher product quality and consistency, and superior customization and
engineering. Continual productivity improvement is a cornerstone of the
Company's manufacturing strategy.
The Company monitors its processes and products to ensure that its
customer's quality requirements are met. This ongoing commitment to quality is
evident in the detailed data collection and documentation capabilities used by
the Company. As a result of its quality assurance orientation, the Company has
won the Chrysler Pentastar Award in each of the last eight years, placing it
within the top 2% of Chrysler's suppliers. The Company's operations are
currently in the process of seeking certification under the International
Quality Standard, ISO 9000, and the rigorous U.S. automotive standard, QS 9000.
Although the Company believes it will obtain these certifications, there can be
no assurance that it will do so.
Due to continued growth in demand for ceramic fiber products, the North
American-based ceramic fiber industry is approaching full capacity in the
production of bulk fiber and blankets. In the fall of 1995, the Company began a
$14.4 million furnace expansion project at its New Carlisle, Indiana, facility.
This expansion project is being undertaken as a strategic move to meet the
anticipated growing demand for ceramic fiber products and to maintain the
Company's leading North American market position by continuing to exploit its
cost and technology advantages in the high volume manufacture of these products.
This expansion involves the addition of a new furnacing line and other
improvements to the facility.
TECHNOLOGY AND TECHNOLOGY SUPPORT SERVICES
The Company employs a two-pronged technology program that focuses on
process improvement and new product development. The objective of this program
is greater manufacturing efficiency and market leadership in new applications.
As a result of its technology program, the Company has consistently achieved
annual
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<PAGE> 42
productivity and quality improvements in its manufacturing processes. During
each of the four years ended December 31, 1995, the Company's sales of products
which were commercialized within the previous five years comprised over 20% of
the Company's net sales.
The research and development group, located at the Company's headquarters,
operates in a 9,500 square foot laboratory, including facilities for pilot plant
development and traditional research and development activities. This group of
nineteen employees possesses a broad base of material science expertise in
ceramics, chemistry, chemical engineering, mechanical engineering and physics.
In addition, each manufacturing facility has a process engineering staff
dedicated to the design and implementation of cost savings and product
improvement projects. Process engineering efforts draw heavily upon the central
research and development group in order to resolve the customers' technical
requirements.
New product development efforts are initiated based on the feedback and
direction of field sales and marketing professionals. A multi-functional team
approach is used in most development projects. Currently, development teams are
focused on automotive products, fabricated products, and new products for the
Company's furnace-related business, as well as a program to develop new fiber
types as part of the Company's Product Stewardship Program.
The Company has maintained a strong financial commitment to its research
and development program. Research and development expense constituted
approximately 3.3%, 3.0%, and 2.9% of net sales during the years 1993, 1994 and
1995, respectively.
COMPETITION
The ceramic fiber industry is highly competitive, and some of the Company's
competitors are larger and have greater resources than the Company. In the
furnace-related markets, competition is based primarily on product quality,
price, and service. In the new high growth niche markets, competition is based
primarily on product technology, technical specifications, manufacturing process
capabilities, and quality assurance.
The Company believes that it is the leading North American manufacturer of
ceramic fiber as measured by volume. The Company has significant competitors in
its markets, some of which manufacture ceramic fiber while others purchase
ceramic fiber and then reprocess it into products which compete with the
Company's products. In the furnace-related markets, the Company's competitors
are Morgan Crucible's Thermal Ceramics business unit (which is believed by the
Company to be the market leader worldwide), American Premier Refractories and
Chemicals, and A.P. Green. In the automotive market, the Company's significant
competitors include Thermal Ceramics, Minnesota Mining & Manufacturing Company
("3M") and Lydall. Both Lydall and 3M are reprocessors of ceramic fiber. The
Company's significant competitors in its other markets include Lydall and
Thermal Ceramics. In some instances, ceramic fiber competes with a limited
number of non-ceramic fiber products such as hard brick refractories and mineral
wool. However, there are no practical substitutes for ceramic fiber in many
applications.
CYCLICALITY AND SEASONALITY
The Company's products are generally used in industries subject to supply
and demand cycles which reflect general economic activity. In addition, certain
markets historically have been slightly seasonal, with higher sales in the
second and fourth quarters and lower sales in the first and third quarters.
BACKLOG
The Company does not consider its backlog significant because it fills most
of its orders within one month and substantially all of its orders within three
months.
PROPERTIES
The flagship of the Company's operations is located in New Carlisle,
Indiana. This facility is believed to be the largest ceramic fiber manufacturing
plant in the world, producing blown and spun forms of bulk fiber and blankets.
When the New Carlisle expansion is completed, the Company believes that it will
have sufficient
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<PAGE> 43
capacity to meet the demand for bulk fiber and blanket products through the year
2000. The Company also operates three manufacturing plants in Niagara and Erie
Counties in Western New York.
The Company's headquarters is located in Niagara Falls, New York. This site
houses salaried and hourly support and management staff as well as application
engineers and other professionals dedicated to research and development of new
products and applications for ceramic fiber.
The following table provides a description of the Company's principal
facilities.
<TABLE>
<CAPTION>
APPROXIMATE
PLANT SITE SQUARE FEET STATUS USE
- ------------------ ----------- --------- ----------------------------------------------
<S> <C> <C> <C>
New Carlisle, IN 216,000 Owned Bulk ceramic fiber, blankets, modules, boards
Tonawanda, NY 144,000 Leased Papers, felts, boards, XPE(TM),
porosity-controlled paper
Amherst, NY 42,000 Leased Woven and spun textiles
Sanborn, NY 10,000 Leased(a) Fibermax(R), high temperature fiber
Niagara Falls, NY 33,000 Owned Headquarters, research laboratory
<FN>
- ---------------
(a) Currently, the Company owns this property. Prior to the Closing, the Company
will transfer this property to a subsidiary of BP America which will lease
the land to the Company pursuant to a 20 year lease. See "Certain
Relationships and Related Transactions -- Relationship with BP and its
Subsidiaries -- Sanborn Lease."
</TABLE>
PRODUCT AND HEALTH SAFETY ISSUES
Manufacturers of man-made vitreous mineral fibers ("MMVF") such as
fiberglass, mineral wool and ceramic fiber have investigated the potential for
adverse health effects associated with the inhalation of airborne fiber.
Independent animal studies have indicated that ceramic fiber inhaled by test
animals, in large quantities during the course of their lifetimes, can cause
fibrosis, lung cancer and mesothelioma, a malignant tumor of the lining of the
lungs and chest cavity. Company and industry-sponsored studies of workers with
occupational exposure to airborne ceramic fiber, however, to date have found no
clinically significant relationship between ceramic fiber exposure and
respiratory disease in humans.
The Company has established organization and management systems to ensure
that health and safety matters are properly identified, evaluated and addressed
throughout the Company's operations. The Company's health, safety and
environmental quality ("HSE") staff of professionals is led by a senior manager
who reports to the President and Chief Executive Officer of the Company. In
addition to these internal HSE resources, the Company utilizes the knowledge,
skills and expertise of a number of external consultants, including an
independent advisory board. Comprised of an internationally recognized group of
experts in the fields of medicine, pulmonary science, veterinary pathology,
toxicology and legislative, regulatory and legal affairs, the Ceramic Fiber
Advisory Board ("CFAB") evaluates human and animal study protocols and results.
In addition, the CFAB provides advice to the Company regarding proper handling
practices for ceramic fiber and other related product management issues.
The Company developed and implemented a comprehensive Product Stewardship
Program ("PSP") as one of its management systems. A key element of the PSP is
research focused on identifying and evaluating the potential health effects
associated with the inhalation of respirable fibers. These studies have taken
two forms: human studies, known as epidemiological investigations, and
toxicological research, which is generally conducted with test animals. Many of
these research activities have been conducted with the participation of other
members of the ceramic fiber industry.
In the area of human assessment, in 1987 the company commissioned a study
of approximately 1,500 current and former industry employees. The study was
conducted by researchers from the University of Cincinnati. The study, which is
ongoing, analyzes chest x-rays, pulmonary function and medical questionnaires.
Additionally, a mortality registry and a lung tissue registry have been
maintained pursuant to the study. Results to date of this study have identified
no clinically significant incidence of respiratory disease from ceramic fiber
exposure. Another finding indicates that exposure to ceramic fiber is associated
with an increased incidence of pleural plaques. The term "pleural plaque" is
used to describe discrete areas of
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<PAGE> 44
thickening of a pleura (or membrane), usually along the inside of the chest wall
and the outside of the lungs. The formation of pleural plaques is not completely
understood, but is believed to be related to an inflammatory response caused by
inhaled fibers. Pleural plaques, which have previously been associated with
exposure to asbestos, are considered to be markers of exposure, not a form of
disease. Other findings suggest that the combination of ceramic fiber exposure
and smoking may result in a net effect greater than the added impacts of each
individual element. Accordingly, the Company has implemented a no-smoking
program at each of its facilities.
In studies on test animals over the last four decades, mixed results have
been observed. A "maximum tolerated dose ("MTD") study found that lifetime
exposure by laboratory rodents to ceramic fiber, at approximately 200 fibers per
cubic centimeter caused lung cancer in some of the rats tested. Unlike the rat
results, a hamster MTD study found no elevated incidence of lung cancer, but
instead identified some animals with mesothelioma. Separately, a multi-dose
inhalation study identified a "no observable adverse effect level ("NOAEL") at
about 25 fibers per cubic centimeter, along with evidence suggesting a
non-linear relationship between increasing dose and biological effect.
The Company's Product Stewardship Program also includes elements designed
to identify exposed populations, monitor employee and customer exposures and
pursue exposure reductions. Initial assessments indicate that most ceramic fiber
exposure is confined to the workplace and to a limited population of about
30,000 persons. Employee and customer exposure monitoring is conducted by the
Company under a rigorous protocol, jointly adopted pursuant to a voluntary
consent agreement by the U.S. Environmental Protection Agency ("EPA") and the
Refractory Ceramic Fiber Coalition ("RCFC"), the ceramic fiber industry trade
association. Under the terms of this agreement, industry and customer workplace
monitoring samples will be taken for a period of five years to conclude in
mid-1998. Three years of monitoring have resulted in the collection and analysis
of 2,710 samples. Monitoring results document a continued trend of reduced
occupational exposure which have been produced by the introduction or
improvement of engineering controls, process changes or handling practices.
In the absence of a specific U.S. government standard regulating ceramic
fiber exposure, the industry adopted a recommended exposure guideline ("REG") of
one fiber per cubic centimeter. Scientific data available to date has been
regarded as insufficient for the purpose of defining a specific exposure
threshold of acceptably low risk for humans. The industry's voluntary exposure
guideline provides a quantitative basis to measure progress in implementing PSP
objectives to seek continuous reduction in fiber exposure through initiatives
that are technically and economically feasible.
PSP objectives also govern some of the design criteria of an ongoing
product research and development program. Called the 3-D program, representing
dose, dimension and durability, the Company searches for new ways to reduce
ceramic fiber potency potential. Health concerns can be reduced by producing
fibers that do not become airborne (dose); or if they become airborne, the
fibers are too large to be inhaled (dimension); or if inhaled, the fibers break
down more rapidly in the lung (durability). The Company has been active in
developing new types of industrial fibers with physical and chemical properties
that may help to reduce the potential risk associated with ceramic fiber. The
potential risks associated with fiber exposure are believed to be driven by
three characteristics, namely dose, dimension and durability. The Company has
already developed and introduced a new fiber type, suitable for applications to
1,800()F with a significantly reduced potential for exposure risks. The
Company's new fiber development efforts focus on fibers which are dimensionally
difficult to inhale, or if inhaled have physical and chemical properties which
cause them to break down more rapidly in lung fluids.
The proactive communication of ceramic fiber test data and study findings
with employees, customers, and other interested parties is a routine practice at
the Company and also is an important part of the Product Stewardship Program.
Communication occurs in many forms, including warning labels, material safety
data sheets ("MSDSs"), special-purpose information packages, safe-handling
videotapes, presentations to professional societies and trade groups, customer
seminars and workshops, employee communication forums, health communication kits
and reports to regulatory authorities.
In keeping with PSP's proactive communication strategy, the Company has
developed and maintained cooperative working relationships with the regulatory
community. The Company shares animal and human
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<PAGE> 45
study data freely and voluntarily includes regulatory agencies in the
development of the protocols for new studies. EPA conducted a review in 1991 to
determine if ceramic fiber exposure posed an unreasonable risk to human health.
EPA determined that available data was not sufficient to determine whether or
not an unreasonable risk exists. The U.S. Occupational Health and Safety
Administration ("OSHA") and Health Canada ("HC") have been reviewing the
potential health implications of ceramic fiber exposure for several years. The
Company provides information to these agencies routinely and, upon request,
undertakes special studies to facilitate agency investigations. The Company also
shares data with non-regulatory agencies, such as the National Institute for
Occupational Safety and Health ("NIOSH") and the National Toxicology Program
("NTP"). The Company also provides data to private sector organizations, such as
the American Conference of Governmental Industrial Hygienists ("ACGIH") and the
scientific community to facilitate their efforts to evaluate potential
exposure-related impacts.
Over time, health research data have been used by various organizations to
classify man-made mineral fibers. For example, classification terms, such as
"possible" (International Agency for Research on Cancer, "IARC"), "probable"
(EPA and HC), "reasonably anticipated" (NTP), and "suspected" (ACGIH) reflect
the view of each organization as to the potential carcinogenicity of ceramic
fiber and/or other MMVFs. Each of these classifications reflect concern for
human health and uncertainty regarding the potential for airborne ceramic fiber
to affect occupational health adversely. These classification determinations
have not been followed by exposure standards in the U.S., but some regulators in
other countries have adopted a variety of regulatory thresholds. Although none
are presently foreseen domestically, if the U.S. adopts legislative or
regulatory standards severely restricting the use of ceramic fiber or severely
limiting fiber exposure, a material adverse effect on the Company's business
could result.
PATENTS AND TRADEMARKS
Although the Company obtains patent protection for certain product
innovations, the Company believes that its success depends more heavily on the
technical expertise and innovative abilities of its personnel than on its patent
protection. The Company believes its trademarks are important in order to
develop and support brand image and to differentiate itself from competitors.
Some of the Company's technology and trademarks have been licensed to SEPR. See
"Certain Relationships and Related Transactions -- Relationship with SEPR."
EMPLOYEES
The Company's human resource strategy is to recruit, retain and develop an
employee team that is flexible, focused on customer service and capable of
achieving the Company's business objectives. As of June 30, 1996, the Company
employed approximately 404 persons on a full-time basis, most of which were
non-union except for approximately 66 employees at the Company's Tonawanda plant
who are members of the Oil, Chemical and Atomic Workers union. The Company's
agreement with the union expires in 1998. The Company believes it has a
satisfactory relationship with its employees.
LEGAL PROCEEDINGS
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including product liability claims.
From time to time the Company has been named as a defendant in lawsuits
involving alleged injury suffered from exposure to ceramic fiber. The Company
believes that it is not presently a party to any litigation the outcome of which
would have a material adverse effect on its financial condition or results of
operations. See "Risk Factors -- Dependence on Ceramic Fiber; Health and Safety
Issue."
ENVIRONMENTAL MATTERS
General. The Company is subject to a variety of foreign, federal, state
and local governmental regulations related to the use, storage, discharge, and
disposal of toxic, volatile, or otherwise hazardous chemicals used in its
manufacturing processes. Although the Company believes its activities conform to
presently applicable environmental regulations, failure to comply with present
and future regulations could result in fines being imposed on the Company,
suspension of production, or a cessation of operations. There
45
<PAGE> 46
can be no assurance that regulatory changes or changes in regulatory
interpretation or enforcement will not render compliance more difficult and
costly.
Superfund Sites. The Company may be named as a potentially responsible
party ("PRP")pursuant to the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended ("CERCLA" or "Superfund") or comparable
state law in connection with off-site disposal of hazardous substances at three
sites, and Carborundum has entered into a Consent Decree with the New York State
Department of Environmental Conservation to remediate contamination at the
Company's facility located in Sanborn, New York. CERCLA requires clean-up of
sites from which there has been a release or threatened release of hazardous
substances and authorizes the EPA to take any necessary response actions at
Superfund sites, including ordering PRPs liable for the release to take or pay
for such actions. PRPs are broadly defined under CERCLA and include past and
present owners and operators of a site and generators and transporters who have
contributed hazardous substances to the site. Courts have interpreted CERCLA to
impose retroactive, strict, joint and several liability upon all persons liable
for response costs. While the Company's ultimate clean-up liability at the sites
at which the Company is a potential PRP is not presently determined, the Company
does not expect to incur any material liability with respect to any of these
sites, individually or in the aggregate, as a result of BP America's
indemnification obligations for environmental liabilities under the
Recapitalization Agreement. In addition, BP America has assumed liability for
other potential off-site clean-up obligations associated with Carborundum. See
"Certain Relationships and Related Transactions -- Relationship with BP and its
Subsidiaries -- Recapitalization Agreement -- Environmental Indemnity." The
sites at which the Company has maintained potential off-site liability and the
Company's Sanborn, New York facility are described below.
Kline Trail Site. In 1984, the Company voluntarily advised the State of
Indiana of potential unauthorized disposal of waste at an Indiana site by a
transporter. No response from the state has been received, and no further
information about the potential for remediation costs at the site has been
received by the Company. It is expected that little or no liability will be
associated with this site.
PCB Inc., Site. The New Carlisle facility received a request for
information from the EPA in 1994 concerning potential responsibility for cleanup
of the PCB Treatment site located in Kansas City, Kansas and Kansas City,
Missouri. Records indicate that a number of capacitors from the New Carlisle
facility were sent to the PCB Treatment site. A response documenting the timely
destruction of those materials was submitted to the EPA, but no further
information has been provided by the EPA, either as to the number of potential
PRPs involved at the site or total projected clean-up costs.
Shulman Site. The Company has potential liability with respect to the
Shulman site in St. Joseph County, Indiana. The site is a landfill which the
Company believes to have been contaminated by chemicals migrating from an
adjacent facility. Plant trash from the New Carlisle facility was hauled to the
site. An agreement has been reached pursuant to which the Company, as part of a
response group, agreed to assume approximately 5% of certain response costs,
which to date includes $1.7 million for installation of a water line. The
Company's share of that cost is under $100,000. The owner of the adjacent
facility has assumed the bulk of site remediation costs to date. It is
anticipated that site remediation will ultimately involve installing a clay cap
over the site, the cost of which is not yet known.
Sanborn Site. The Company's Sanborn, New York site was used by a number of
former Carborundum operations, as a result of which contamination by volatile
organic compounds is present in the soil and groundwater. Neither past nor
current operations of the Company are believed to have contributed to, or to be
contributing to, the existence of this contamination. While Carborundum entered
into a Consent Decree with the State of New York under which the Company is to
conduct remedial activities at the site, BP America has assumed responsibility
for implementing the remediation, chiefly by means of soil vapor extraction.
Efforts to remediate the site are expected to continue for some time, at a cost
to BP America of approximately $12.5 million.
Environmental Indemnity. See "Certain Relationships and Related
Transactions -- Relationship with BP and Its Subsidiaries -- Recapitalization
Agreement -- Environmental Indemnity."
46
<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Effective as of the Closing, the directors and executive officers of the
Company are expected to be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------
<S> <C> <C>
William P. Kelly..................... 46 Director, President and Chief Executive
Officer
Mark D. Roos......................... 41 Director, Vice President and Chief Financial
Officer
Paul J. Viola........................ 40 Vice President, Sales and Marketing
Kevin J. O'Gorman.................... 45 Vice President, Operations
Paul M. Boymel....................... 43 Vice President, Research and Development
Joseph J. Kuchera.................... 38 Vice President, Human Resources
John E. Pilecki...................... 44 Vice President, Engineering and Purchasing
Raymond A. Lancaster................. 50 Director
William D. Manning, Jr............... 62 Director
John G. Nestor....................... 51 Chairman of the Board
John F. Turben....................... 61 Director
Edmund S. Wright..................... 53 Director
</TABLE>
Mr. Kelly has been President and Chief Executive Officer of the Company
since the Saint-Gobain Sale. He joined Carborundum in 1972 as an engineer, and
served in several positions, including Vice President of Carborundum's worldwide
ceramic fiber business from 1993 to 1996 and Vice President of the Company from
1989 to 1993, and Vice President-Europe from 1986-1989.
Mr. Roos has been Vice President and Chief Financial Officer of the Company
since the Saint-Gobain Sale, and has been chief financial officer of the Company
since 1995. He joined Carborundum in 1985 and served in several financial
planning, control and business strategy positions until he left in 1991 to
become Vice President, Finance and Administration, of The Airolite Company, a
metal products manufacturer. He rejoined Carborundum in 1993 as Director of
Finance, Planning and Control.
Mr. Viola has been Vice President, Sales and Marketing of the Company since
the Saint-Gobain Sale. He joined Carborundum in 1978 and served in several
positions, including General Manager, Sales and Marketing for Carborundum's
worldwide ceramic fiber business from 1993 to 1995 and Manager of the Automotive
Products Group of Carborundum's Structural Ceramics Division from 1991 to 1993.
Mr. O'Gorman has been Vice President, Operations of the Company since the
Saint-Gobain Sale. He joined Carborundum in 1990 and served as General Manager,
Manufacturing and Engineering of its worldwide ceramic fibers business from 1993
to 1995 and Manager, Manufacturing for the Company from 1990 to 1993.
Dr. Boymel has been Vice President, Research and Development of the Company
since the Saint-Gobain Sale and Manager of Technology since 1989. He joined
Carborundum in 1981.
Mr. Kuchera has been Vice President, Human Resources of the Company since
the Saint-Gobain Sale and Manager of Human Resources since 1988. He joined
Carborundum in 1981 and served in several human resource positions in connection
with a number of different Carborundum business units.
Mr. Pilecki has been Vice President, Engineering and Purchasing of the
Company since the Saint-Gobain Sale. He joined Carborundum in 1976 and has
served in various engineering and manufacturing positions, including as
Engineering Manager since 1990 and worldwide engineering and purchasing manager
since 1993.
47
<PAGE> 48
Mr. Lancaster has been a Managing Partner of Kirtland since 1995. From 1990
to 1995, he was a General Partner of Key Equity Partners, a unit of Keycorp.
From 1984 to 1990, he was a Managing Partner of Norstar Venture Partners, a unit
of Fleet Financial Group. Mr. Lancaster is a director of Steris Corp. and
Fairmount Minerals Ltd.
Mr. Manning is currently self-employed as a management consultant. From
1987 to 1994, he was Senior Vice President of The Lubrizol Corporation and
President of Lubrizol Petroleum Chemicals Co. Mr. Manning is a director of
Robbins and Myers, Inc., Fletcher Paper Company and Park Avenue Marble Co.
Mr. Nestor has been with Kirtland since 1986 and has been a Managing
Partner of Kirtland since 1995. He is a director of Execution Services Inc. and
Fairmount Minerals Ltd.
Mr. Turben has been with Kirtland since 1977 and has been a Managing
Partner of Kirtland since 1995. He is a director of Execution Services Inc.,
Fairmount Minerals Ltd., Austin Ventures and Harrington & Richardson 1871, Inc.
Mr. Wright has been Chairman of the Board of Directors of Dakota Catalyst
Inc. since 1995. From 1981 to 1994, he was President and Chief Executive Officer
of North American Refractories Company. Mr. Wright is a director of Fairmount
Minerals Ltd.
COMPENSATION OF DIRECTORS
The Company expects that all directors of the Company will receive an
annual retainer of $10,000.
EXECUTIVE COMPENSATION
The following table sets forth the respective amounts of compensation of
the Chief Executive Officer and the next four highest-paid executive officers of
the Company (determined by reference to 1995) (the "named executive officers")
for 1995.
1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND ------------------ OPTIONS/ ALL OTHER
PRINCIPAL POSITION SALARY BONUS SARS(A) COMPENSATION(B)
- --------------------------------------------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
W. Kelly..................................... $155,514 $53,000 37,800/ $ 4,631
President and 0
Chief Executive Officer
K. O'Gorman.................................. 115,689 30,641 19,560/ 3,441
Vice President, 0
Operations
P. Viola..................................... 106,632 28,490 19,560/ 3,171
Vice President, 0
Sales and Marketing
M. Roos...................................... 101,760 22,000 0/ 3,027
Vice President and 1,100
Chief Financial Officer
J. Pilecki................................... 86,072 13,337 0/0 2,563
Vice President, Engineering and Purchasing
<FN>
- ---------------
(a) Options relate to ordinary shares of BP and do not relate to shares of
Common Stock of the Company. SARs relate to American Depositary Receipts
("ADRs") of BP. Each ADR is equal to twelve ordinary shares of BP.
</TABLE>
48
<PAGE> 49
(b) Represents matching contributions made on behalf of the individuals to the
BP Capital Accumulation Plan and does not include bonuses paid to Messrs.
Kelly and Roos in 1996 by BP relating to the Saint-Gobain Sale.
STOCK OPTION AND SAR GRANTS, EXERCISES AND YEAR-END VALUES
The following tables set forth information regarding grants of stock
options and SARs to the named executive officers during 1995, exercise of stock
options during 1995 by, and the value of options and SARs held at the end of
1995 by, the named executive officers. The stock options granted in 1995 and
earlier relate to ordinary shares of BP. The SARs granted in 1995 and earlier
relate to ADRs of BP. Each ADR is equal to twelve ordinary shares of BP.
OPTION/SAR GRANTS IN 1995 INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS/ VALUE AT
NUMBER OF SARS ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICES
UNDERLYING EMPLOYEES APPRECIATION FOR
OPTIONS/ IN EXERCISE (10 YEARS)(d)
SARS FISCAL OR BASE -------------------------------------
NAME GRANTED(a) YEAR(b) PRICE(c) EXPIRATION DATE 5% 10%
- ------------------------ ---------- ----------- -------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
W. Kelly (e)............ 37,800/0 N/A $ 6.46 February 28, 2005 $ 153,567 $ 389,173
K. O'Gorman (e)......... 19,560/0 N/A 6.46 February 28, 2005 79,465 201,381
P. Viola (e)............ 19,560/0 N/A 6.46 February 28, 2005 79,465 201,381
M. Roos (f)............. 0/1,100 N/A 76.63 February 28, 2005 53,011 134,341
J. Pilecki.............. 0/0 N/A N/A N/A N/A N/A
<FN>
- ---------------
(a) Options and SARs become exercisable three years from the date of grant,
provided that BP meets certain performance targets.
(b) The number of options and SARs granted to each of the named executive
officers represents less than 1% of the total options and SARs granted to BP
employees in 1995.
(c) Represents the closing price on the business day immediately preceding the
date of grant. Options are exercisable in United Kingdom pounds sterling.
The options were granted at an exercise price of 4.08 pounds sterling. The
estimated exercise price in U.S. dollars was determined by using the
exchange rate on grant date of 1.5838 U.S. dollars to one United Kingdom
pound sterling. The actual exercise price in U.S. dollars may be different
depending on the exchange rate at the time of exercise.
(d) The assumed rates of appreciation are not intended to represent either past
or future appreciation rates with respect to the ordinary shares or the ADRs
of BP. The rates are prescribed in the applicable Securities and Exchange
Commission rules for use by all companies for the purpose of this table.
(e) This table does not include the March 6, 1996, grant of options to Messrs.
Kelly, O'Gorman and Viola each in the amount of 16,000 BP ordinary shares
exercisable in United Kingdom pounds sterling. Such options were granted at
an exercise price of 5.41 pounds sterling. The estimated exercise price in
U.S. dollars, $8.28, was determined by using the exchange rate on grant date
of 1.5305 U.S. dollars to one United Kingdom pound sterling. The actual
exercise price in U.S. dollars may be different depending on the exchange
rate at the time of exercise. The potential realizable value of these
options at assumed annual rates of stock price appreciation of 5% and 10%
for the ten-year option term are $83,315 and $211,139, respectively. See
footnote (d) above. These options terminate upon the consummation of the
Recapitalization.
(f) This table does not include the March 6, 1996, grant of SARs to Mr. Roos in
the amount of 900 ADRs of BP. The SARs were granted at an exercise price of
$101.06. The potential realizable value of these SARs at assumed annual
rates of stock price appreciation of 5% and 10% for the ten-year SAR term
are $57,202
</TABLE>
49
<PAGE> 50
and $144,961, respectively. See footnote (d) above. These SARs terminate
upon the consummation of the Recapitalization.
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND
FISCAL YEAR END OPTION/SAR VALUES (a)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(a)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
W. Kelly................................ 0/0 37,800/2,001 $ 0/0 $76,901/81,044
K. O'Gorman............................. 0/0 19,560/1,800 0/0 39,793/68,700
P. Viola................................ 0/0 19,560/1,701 0/0 39,793/64,790
M. Roos................................. 0/466 0/2,034 0/16,543 0/61,070
J. Pilecki.............................. 0/0 0/0 N/A N/A
<FN>
- ---------------
(a) An option or SAR is "in the money" when the fair market value of the
underlying ordinary shares or ADRs exceeds the exercise price of the option
or SAR.
</TABLE>
1996 UNIFRAX CORPORATION STOCK OPTION PLAN
The Company expects to adopt a stock option plan (the "Option Plan") prior
to the consummation of the Offering pursuant to which options relating to the
common stock of the Company may be granted to any person who at the time of the
grant, is an employee of the Company or a subsidiary of the Company. The Option
Plan will be administered by the Compensation Committee. Subject to the express
provisions of the Option Plan, the Committee will have broad discretion to make
all determinations necessary or advisable for administering the Option Plan,
including the terms and conditions upon which options may be granted or
exercised.
RETIREMENT BENEFITS
The Company is a participating employer in the BP America Retirement
Accumulation Plan (the "Plan") for salaried employees, which was amended as of
January 1, 1989, to provide monthly benefit credits based upon years of service
as follows:
<TABLE>
<CAPTION>
PERCENT OF
ELIGIBLE PERCENT OF
COMPENSATION ELIGIBLE
UP TO COMPENSATION
AND INCLUDING ABOVE
1/48 OF THE 1/48 OF THE
YEARS OF SERVICE SOCIAL SECURITY SOCIAL SECURITY
(AT BEGINNING OF MONTHS) WAGE BASE WAGE BASE
----------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Tier I:.............. less than 10 3% 6%
Tier II:............. 10, less than 20, or attainment of age 40 4% 7%
Tier III:............ 20, less than 35, or attainment of age 50 5% 9%
Tier IV:............. 35 or more, regardless of age 6% 6%
</TABLE>
Eligible compensation includes base salary but does not include annual
incentive awards paid currently or long-term incentive awards. Benefits for
service through December 31, 1988, were based on the Plan formula then in
effect, and were converted to opening balances under the Plan. Both opening
balances and benefit credits receive regular interest credits at one-year
Treasury Bill rates plus 1% (with a minimum of 5%) until the participant
commences receiving benefit payments. In addition, the opening balance receives
supplemental interest credits at one-half of the regular interest credit rate
until the participant separates from service. For the year 1995, the regular
interest rate was 6.25% and the supplemental interest rate was 3.125%.
50
<PAGE> 51
The Plan contains transitional provisions for employees who were at least
age 50 at January 1, 1989. The transitional minimum benefit is a final average
pay benefit for all service, specifically 1.6% of final average pay (based on
final three years) times years of service up to 35 less 50% of the primary
social security benefit reduced proportionately for years of service less than
35. Benefits vest after completion of five years of service.
The Company is a participating employer in the BP America supplemental
plans which will provide those benefits which are otherwise produced by
application of the Plan formula, but which, under Section 415 or Section
401(a)(17) of the Internal Revenue Code, are not permitted to be paid through a
qualified plan and its related trust. Such arrangements are specifically
provided for under the law. The Company also has a supplemental plan which uses
the Plan formula applied to annual incentive awards.
The total projected annual benefits payable under the formula of the Plan
at age 65, without regard to the Section 415 or 401(a)(17) limit and recognizing
supplemental pensions as described above, are as follows for the named executive
officers of the Company: Mr. Kelly $126,545, Mr. O'Gorman $43,787, Mr. Viola
$91,800, Mr. Roos $59,638, and Mr. Pilecki $21,195. These projected benefits are
based on an annuity conversion rate of 6.5%, future regular interest credits of
5.0%, and a 0.0% salary scale.
Upon consummation of the Offering, the Company will cease to be a
participating employer under the plans described above and employees will be
treated as terminated participants in accordance with applicable plan
provisions. The Company expects that its Board of Directors will consider the
adoption of one or more retirement plans following the consummation of the
Offering.
The Company is a participating employer in the BP America Master Hourly
Plan for Represented Employees ("Hourly Plan") with respect to its
collectively-bargained employees. The Hourly Plan currently provides an accrued
benefit to the eligible Hourly Plan participants of $23.00 per year of credit
service, which amount is scheduled to increase to $24.00 per year of credited
service for retiring and/or terminating plan participants after September 23,
1996.
After the Closing, the Company will cease to be a participating employer
under the Hourly Plan. The Company will establish a mirror plan with respect to
this benefit program, to provide a continuation of benefits to the active
collectively-bargained employees at the Closing Date. Assets related to the
accrued liabilities of these active employees shall be transferred from the
Hourly Plan trust to a trust established by the Company in relation to the
mirror plan.
SAVINGS PLAN
The Company is a participating employer in the Carborundum Capital
Accumulation Plan (the "CAP") which covers substantially all employees,
including executive officers, but excludes employees covered by the collective
bargaining agreement. The CAP is designed to qualify under Section 401(a) of the
Internal Revenue Code. Each participant has the option to defer taxation of a
portion of his or her earnings by directing the Company to contribute a
percentage of such earnings to the CAP. A participant may direct a minimum of 1%
and a maximum of 16% of eligible earnings to the CAP, subject to certain
limitations set forth in the Code. Under certain circumstances, the Internal
Revenue Code will impose limits on the amount of earnings of a "highly
compensated" participant (as defined in Section 414(q) of the Code). A
participant's contributions become distributable upon the termination of his or
her employment for any reason. The Company matches 50% of each dollar, up to 6%
of base pay, of employee contributions to the CAP. Upon consummation of the
Offering, the Company will cease to be a participating employer under the CAP
and employees will be treated as terminated participants in accordance with
applicable plan provisions. The Company expects to adopt a similar plan.
The Tax Deferred Savings Plan for Hourly Employees of the Carborundum
Company and related trust (401(k) Savings Plan) is applicable to the employees
covered by the collective bargaining agreement and is designed to qualify under
Section 401(a) of the Internal Revenue Code. Each participant has the option to
defer taxation of a portion of his or her earnings by directing the Company to
contribute a percentage of such earnings to the Savings Plan. A participant may
direct a minimum of 1% and a maximum of 16% of eligible earnings to the Savings
Plan, subject to certain limitations under the Internal Revenue Code. A
participant's
51
<PAGE> 52
contributions become distributable upon the termination of his or her employment
for any reason. The Company does not match any employee contributions. The
Company plans to continue this collectively-bargained Savings Plan.
THE BOARD AND CERTAIN BOARD COMMITTEES
The Company's Board will supervise the management of the Company as
provided by Delaware law. Shortly after consummation of the Offering, the
Company's Board is expected to establish the following committees:
The Executive Committee will possess all the powers and authority of the
Company's Board in the management and direction of the business and affairs of
the Company, except as limited by law.
The Audit Committee will recommend to the Board the Company's independent
auditors, review the annual audit reports of the Company, and review audit and
any non-audit fees paid to the Company's independent auditors. The Audit
Committee will report its findings and recommendations to the Board for
ratification. At least a majority of the members of the Audit Committee will be
independent directors.
The Compensation Committee will be charged with responsibility for
supervising the Company's executive compensation policies, administering the
employee incentive plans, reviewing officers' salaries, approving significant
changes in executive employee benefits, and recommending to the Board such other
forms of remuneration as it deems appropriate. The Compensation Committee will
be comprised entirely of independent directors.
52
<PAGE> 53
PRINCIPAL STOCKHOLDERS
Holding owns 100% of the issued and outstanding common stock of Investment
Corp. Upon completion of the Recapitalization, Holding will own 90% of the
issued and outstanding common stock of the Company, with the remaining 10% held
by BPX. Upon consummation of the Recapitalization, the following persons will
own the outstanding common stock of Holding as set forth below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIAL OWNER OF COMMON STOCK OF CLASS
----------------------------------------------------------- --------------- --------
<S> <C> <C>
Kirtland................................................... 247,000 91.5%
2550 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094(a)
William P. Kelly........................................... 5,000 1.9%
Mark D. Roos............................................... 1,000 *
Paul J. Viola.............................................. 1,350 *
Kevin J. O'Gorman.......................................... 1,500 *
John E. Pilecki............................................ 1,150 *
All directors and executive officers %
of the Company as a group(b)............................. 13,350 4.9
<FN>
- ---------------
*Less than 1%
(a) Kirtland Capital Corporation is the general partner of Kirtland and
exercises voting control and investment discretion with respect to
Kirtland's investment in Unifrax. John F. Turben, John G. Nestor and Raymond
A. Lancaster are the directors of Kirtland Capital Corporation.
(b) Excludes shares held by Kirtland of which Messrs. Turben, Nestor and
Lancaster may be deemed to be beneficial owners as a result of their control
of Kirtland. Messrs. Turben, Nestor and Lancaster disclaim any such
beneficial ownership.
</TABLE>
53
<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH BP AND ITS SUBSIDIARIES
Stockholders Agreement. At the Closing, Holding and BPX will enter into an
agreement relating to their respective ownership of stock of the Company (the
"Stockholders Agreement"). This agreement will: (i) in certain circumstances
grant BPX preemptive rights and rights of first refusal with respect to
issuances and sales, respectively, of stock of the Company; (ii) grant BP
piggyback registration rights with respect to equity securities of the Company;
(iii) restrict in certain circumstances the ability of the Company to enter into
certain dilutive or non-arm's-length transactions; and (iv) grant BP the right
to participate in certain circumstances in sales by Holding of Holding's common
stock of the Company.
Recapitalization Agreement. Pursuant to the Recapitalization Agreement, BP
America has agreed to indemnify the Company as set forth below.
General Indemnity. The Recapitalization Agreement provides that,
subject to certain limitations, BP America and certain of its affiliates
(collectively, "Seller") shall jointly and severally indemnify the Company
and Holding against, among other things, any and all claims, damages,
losses, expenses, costs, penalties, liens, fines, assessments, obligations
or liabilities of any kind, arising from all the discontinued operations of
the Company or its subsidiaries. The discontinued operations include but
are not limited to certain previously divested businesses, any other
Carborundum business not part of the Division or its foreign subsidiaries,
and the Sanborn New York real estate being transferred from the Company to
a BP subsidiary prior to Closing. See "-- Sanborn Lease". Seller also has
agreed to indemnify the Company and Holding for any breach of a
representation or warranty set forth in the Recapitalization Agreement.
Health and Safety Indemnity. Pursuant to the Recapitalization
Agreement, Seller has agreed to indemnify the Company and Holding against
liabilities for personal injury and wrongful death attributable to exposure
prior to the Closing to refractory ceramic fibers manufactured by the
Company. Seller has agreed to indemnify the Company and Holding against all
liabilities arising from exposure claims pending at the time of the
Closing. For all other claims arising from alleged exposure occurring
solely prior to Closing, Seller has agreed to indemnify the Company and
Holding against 80% of all losses, until the total loss which the Company
incurs reaches $3.0 million, after which time Seller has agreed to
indemnify the Company and Holding against 100% of such losses. Seller has
agreed to indemnify the Company and Holding against all punitive damages
attributable to the conduct of the Company prior to Closing. Where losses
arise from alleged exposure both before and after Closing, the losses will
be allocated between Seller and the Company, pro rata, based on the length
of exposure or pursuant to arbitration if initiated by the Company.
The Company cannot avail itself of this indemnity for losses
attributable to the Company's failure to maintain a Product Stewardship
Program consistent with the program maintained by the Company prior to
Closing, as modified in a commercially reasonable manner in accordance with
changing regulatory, scientific and technical factors. BP shall not
indemnify the Company with respect to any liabilities for wrongful death or
personal injury to the extent caused by the failure of the Company to
maintain a Product Stewardship Program consistent with that maintained by
the Company prior to the Closing.
Environmental Indemnity. Pursuant to the Recapitalization Agreement,
and subject to certain limitations, Seller has agreed to indemnify the
Company and Holding against environmental liabilities arising from
pre-closing conditions. The Recapitalization Agreement also provides that
Seller shall indemnify the Company and Holding against off-site liabilities
caused by the transport, storage or disposal of hazardous substances as
well as for the remedial obligations at the Sanborn, New York site.
Non-compete Agreement. At the Closing, BP shall enter into the Non-compete
Agreement with Holding providing that for a period of five years from the
Closing, BP and its affiliates will not, anywhere in the world, own, advise,
consult, manage, operate, join, control, be associated with or participate in
the ownership, management, operation or control of any business that competes
with the Company or its subsidiaries. Holding shall pay BP $10 million for the
Non-compete Agreement.
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Sanborn Lease. Prior to the Closing, the Company will transfer the real
property located at 2050 Cory Drive, Sanborn, New York 14132 (the "Sanborn
Property"), to a subsidiary of BP America known as Elm Holdings, Inc. ("Elm
Holdings"). Elm Holdings will lease the land comprising the Sanborn Property to
the Company in accordance with the terms and conditions of a 20 year lease (the
"Lease"). The building and all improvements and fixtures will be owned by the
Company . The Lease provides that the Company will be responsible for taxes,
utilities and insurance. The Company has an option to purchase the property for
$1.00 at any time during the 20-year lease term. The Company will utilize this
facility pursuant to a lease, rather than fee ownership, in order to preserve
maximum flexibility for possible consolidation of operations in the future.
RELATIONSHIP WITH SEPR
As part of the Saint-Gobain Sale, the Company entered into a series of
agreements with SEPR which are summarized below (collectively, the "SEPR
Agreements").
Covenant Not to Compete. Pursuant to a covenant not to compete, the
Company is prohibited from manufacturing, selling or distributing products (with
the exception of XPE(TM) for automotive catalytic converters) outside the North
American market or owning an interest in or having an involvement with any
manufacturer or distributor of ceramic fibers outside that territory until March
1, 2001. SEPR is prohibited from manufacturing, selling and distributing
products in North America which are manufactured using technology licensed by
the Company to SEPR.
License Agreement. Pursuant to a License Agreement, SEPR received from the
Company a royalty-free license (the "License") to manufacture and sell outside
the North American market the ceramic fiber products, and their improvements and
replacements, which were manufactured by the Company in Australia, Brazil,
Germany, and the United Kingdom prior to the Saint-Gobain Sale. The Company is
precluded from granting any further license of this technology outside the North
American market for 20 years except to an affiliate. Until March 1, 2001, SEPR
is obligated to pay the Company an annual technical fee, and the Company must
provide specific technical services, and product improvements and replacements,
and must maintain all of its patents outside of the North American market.
Product Distribution Agreement. Pursuant to the Product Distribution
Agreement, SEPR has been appointed as the Company's exclusive distributor
outside the North American market, for a five-year term, for the Company's
product lines which are not covered by the License, except for XPE(TM). These
include (i) products manufactured only in the North American market and sold
outside the North American market prior to the Saint-Gobain Sale ("Group I
Products"); and (ii) if SEPR is unable, with its equivalent products, to fulfill
a request from a customer outside of the North American market, (y) products
manufactured only in the North American market and not sold outside the North
American market prior to the Saint-Gobain Sale or (z) products developed by the
Company after the Saint-Gobain Sale ("Group II Products").
For Group I Products, minimum purchase quantities and distributor discounts
are to be agreed upon annually on a product-by-product basis by the Company and
SEPR. Failure to agree on sales quantities or discounts or failure by SEPR to
purchase the minimum quantities may lead to termination of the Product
Distribution Agreement on a product-by-product basis twelve months thereafter.
For Group II Products, SEPR receives a fixed discount from the prevailing North
American market price.
Distribution Product License Agreement. Pursuant to the Distribution
Product License Agreement, SEPR must distribute such products on the Company's
behalf. SEPR is not entitled to a license to manufacture any of the Group II
Products. SEPR will be granted a royalty-bearing manufacturing license on any
Group I Products which are terminated from the Product Distribution Agreement.
SEPR also has the right to cancel the Product Distribution Agreement upon 12
months' notice on a product-by-product basis for Group I Products by taking out
a license. Any license of Group I Products will grant rights to the then-current
patents and technology but will not include any rights to license improvements
developed by the Company after the product has been terminated from the Product
Distribution Agreement. Any license for Group I Products will require SEPR to
pay a royalty on a declining scale until March 1, 2006, after which the license
becomes royalty-free. The Company is obligated to supply technical services, to
be charged at a per diem rate, until February 29, 2002.
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<PAGE> 56
Conversion Agreement. Pursuant to the Conversion Agreement, SEPR has an
obligation to die-cut rolls of XPE(TM) for the Company in connection with the
Company's sales to customers within Europe and South America and has been
granted a right of first refusal to provide this service to the company in other
countries outside the North American market. These rights and obligations will
continue until the earlier of a cancellation of this arrangement by SEPR or the
expiration of certain patents covering XPE(TM).
XPE(TM) License Agreement. Pursuant to the XPE(TM) License Agreement, SEPR
may cancel the Conversion Agreement upon six months' notice and take up to a
20-year royalty-free license to manufacture XPE(TM). The Company may continue to
sell XPE(TM) outside of the North American market during the term of such
license. In such event, the Company will be precluded from granting any further
license of this technology outside of the North American market for 20 years
except to an affiliate. The Company is obligated to supply, at a per diem rate,
technical services for a period of three years from the date of grant of the
license. The technology to be transferred will be that current at the date of
grant of the license but with no rights to improvements thereafter.
Trademark License and Consent Agreement. Under the terms of the
Saint-Gobain Sale, the name "Carborundum" and the Carborundum logo became the
property of SEPR, with the Company having the right to continue to use the name
and logo until March 1, 1997 while exhausting the existing inventory of
literature and packaging material. The ownership of product trademarks such as
Fiberfrax(R) ceramic fiber, remains with the Company. Until March 1, 2001, SEPR
has the right to use the Company's product trademarks royalty-free outside of
the North American market for products manufactured under the License Agreement.
After March 1, 2001, SEPR will have no further right in such product trademarks
and sole use thereof will revert to the Company.
RELATIONSHIP WITH KIRTLAND AND HOLDING
Kirtland Advisory Services Agreement. At the Closing, the Company will pay
Kirtland a financing fee of $500,000 and reimburse Kirtland for its
out-of-pocket expenses as compensation for its services as financial advisor.
Also at the Closing, Kirtland and the Company will enter into an Advisory
Services Agreement (the "Advisory Services Agreement") pursuant to which
Kirtland will provide management consulting and financial advisory services to
the Company for an annual fee initially in the amount of $300,000, which amount
may be increased up to $500,000 with the approval of the members of the Board of
Directors of the Company who do not have a direct financial interest in any
person receiving payments under the Advisory Services Agreement. In addition, if
the Company completes an acquisition, Kirtland will be entitled to receive a fee
in an amount which will approximate 1% of the gross purchase price of the
acquisition (including assumed debt). The Advisory Services Agreement will
include customary indemnification provisions in favor of Kirtland.
Tax Sharing Agreement. Holding will file a consolidated federal income tax
return, under which the federal income tax liability of Holding and its
subsidiaries will be determined on a consolidated basis. Holding will enter into
a tax sharing agreement with the Company (the "Tax Sharing Agreement"). The Tax
Sharing Agreement is expected to provide that in any year in which the Company
is included in any consolidated tax return of Holding and has taxable income,
the Company will pay to Holding (except with respect to tax benefits resulting
from the Non-compete Agreement between BP and Holding) the amount of the tax
liability that the Company would have had on such date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holding and its other
subsidiaries, if any, Holding will credit to the Company the amount of such
reduction in the consolidated tax liability. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holding and the
Company of such state and local taxes.
The Company believes that the terms of the agreements and transactions
described above are fair to the Company and that no more favorable terms could
be obtained from unaffiliated third parties.
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<PAGE> 57
DESCRIPTION OF CREDIT AGREEMENT AND OTHER INDEBTEDNESS
CREDIT AGREEMENT
Concurrently with the consummation of the Offering, the Company will
execute and deliver a $45.0 million term loan and revolving credit agreement
(the "Credit Agreement") and borrow thereunder approximately $25.0 million. The
proceeds from the sale of the Notes and the borrowings under the Credit
Agreement will be used to fund the Recapitalization and to pay financing fees
associated with the issuance of the Notes.
The balance of available borrowings under the Credit Agreement will be
available for general corporate purposes, including working capital and other
requirements of the Company. The revolving credit loans and the term loan are
anticipated to bear interest at a rate based upon the lender's prime rate or a
LIBOR-based rate. It is expected that the Company will also pay a commitment fee
upon the closing of the Credit Agreement, and an annual fee based in part upon
the amount of the average unused commitments. It is expected that the Credit
Agreement will terminate on the fifth anniversary of the date of the
consummation of the Offering, unless terminated sooner upon an event of default
(to be defined in the Credit Agreement), and outstanding revolving credit loans
and the term loan will be payable on such date or such earlier date as may be
accelerated following the occurrence of any event of default.
The Credit Agreement contains various covenants, including financial
covenants that require the Company to maintain minimum levels of net worth,
interest coverage and debt coverage ratios and capital expenditures. The other
covenants contained in the Credit Agreement include the obligation on the part
of the Company and its subsidiaries to limit mergers, liquidations,
consolidations and the sale and purchase of property; to limit dividends and
payments in respect of capital stock and indebtedness; to limit the incurrence
of indebtedness and the granting of liens and providing guarantees and making
investments and creating subsidiaries; to limit entering into future agreements
and transactions with related parties and making amendments to certain documents
(including the Indenture and the Notes).
The Events of Default contained in the Credit Agreement include the failure
to pay amounts due thereunder and the failure to perform or observe other
covenants set forth in the Credit Agreement and Agreements relating thereto; the
failure to make payments due under other indebtedness and the occurrence of any
default thereunder (including the Notes); insolvency, bankruptcy reorganization
or other similar proceedings of the Company and any of its subsidiaries; the
occurrence or existence of certain events relating to employee benefits matters;
if any representation or warranty of the Company or any of its subsidiaries in
the Credit Agreement or any agreement relating thereto or any documents
delivered in connection therewith is untrue or misleading in any material
respect when made or deemed made; if a judgment or decree is entered against the
Company or any subsidiary thereof, subject to certain limitations; if the Credit
Agreement or any agreement relating thereto ceases to be valid or enforceable or
the obligations thereunder are terminated; if the Company or any subsidiary
thereof is enjoined or restrained from conducting all or a material part of its
business for ten (10) or more days; if payments are made under the BP Note when
the funds available to the Company are below a certain minimum level; if there
occurs a material adverse change in the Company or in the collateral securing
the indebtedness under the Credit Agreement or in the ability of the Company to
perform its obligations thereunder; or if there occurs a change of control of
the Company or Holding.
Indebtedness under the Credit Agreement will rank pari passu with the Notes
and will be secured by a lien on all of the Company's real and personal
property, accounts receivable, inventory, general intangibles, trademarks and
licenses and the proceeds thereof. The Credit Agreement will contain various
events of default customary for transactions of this type.
THE BP NOTE
At the Closing, the Company will issue to BPX the BP Note in the principal
amount of $7.0 million. The note shall bear interest at the prime rate of
interest charged by a bank to be specified at Closing. Interest on the BP Note
is due on the first, second and third anniversaries of the date of the BP Note.
The principal of the BP Note is due on the third anniversary of the BP Note. The
BP Note is subordinate to the Notes and to the indebtedness under the Credit
Agreement.
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DESCRIPTION OF NOTES
The Notes will be issued under an indenture (the "Indenture") to be dated
as of , 1996 by and among the Company and PNC Bank, National
Association, as Trustee (the "Trustee"). The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "TIA"), and to all of the provisions of the Indenture (a
copy of which will be filed as an exhibit to the Registration Statement of which
this Prospectus is a part), including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain
Definitions."
The Notes will be senior unsecured obligations of the Company, ranking pari
passu in right of payment with all other senior unsecured obligations of the
Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration of transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any paying agent and registrar without notice to holders of the Notes (the
"Holders"). The Company will pay, when due, principal (and premium, if any) on
the Notes at the Trustee's corporate office in New York, New York. At the
Company's option, when due, interest may be paid at the Trustee's corporate
trust office or by check mailed to the registered addresses of the Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100,000,000 and
will mature on , 2003. Interest on the Notes will accrue at the rate
of % per annum and will be payable semi-annually in cash on each April 15
and October 15, commencing on April 15, 1997, to the Persons who are registered
Holders at the close of business on the and , respectively,
immediately preceding the applicable interest payment date. Interest on the
Notes will accrue from and including the most recent date to which interest has
been paid or, if no interest has been paid, from and including the date of
issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after
, 2000, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on of the years
set forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2000.................................... %
2001.................................... %
2002 and thereafter..................... 100.000%
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time, or from
time to time, on or prior to , 1999, the Company may, at its
option, redeem up to $30,000,000 in aggregate principal amount with the net cash
proceeds of one or more Public Equity Offerings (as defined below) to redeem the
Notes at a redemption price equal to % of the principal amount thereof plus
accrued interest to the date of redemption; provided that after giving effect to
any such redemption the aggregate principal amount of Notes outstanding must
equal at least $70,000,000. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 60 days after the consummation of any such Public Equity Offering.
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As used in the preceding paragraph, a "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of Holding or the
Company pursuant to a registration statement filed with and declared effective
by the Commission in accordance with the Securities Act; provided that, in the
event of a Public Equity Offering by Holding, Holding contributes to the capital
of the Company the portion of the net cash proceeds of such Public Equity
Offering necessary to pay the aggregate redemption price plus accrued interest
to the redemption date of the Notes to be redeemed pursuant to the preceding
paragraph.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; and provided,
further, that if a partial redemption is made with the proceeds of a Public
Equity Offering, selection of the Notes or portions thereof for redemption shall
be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to the procedures of the Depository Trust Company),
unless such method is otherwise prohibited. Notice of redemption shall be mailed
by first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest thereon to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). A Change of Control Offer shall remain open for a period of 20
business days or such longer period as may be required by law. Holders electing
to have a Note purchased pursuant to a Change of Control Offer will be required
to surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the paying agent for the
Notes at the address specified in the notice prior to the close of business on
the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to the Company's obligation to make a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company and
its Subsidiaries to incur additional Indebtedness, to grant liens on their
property, to make Restricted Payments and to make Asset Sales may also make more
difficult or discourage a
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takeover of the Company, whether favored or opposed by the management of the
Company. Consummation of any such transaction in certain circumstances may
require repurchase of the Notes, and there can be no assurance that the Company
or the acquiring party will have sufficient financial resources to effect such
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company by the management of the Company. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
Holders of Notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume, guarantee, acquire, become liable, contingently or otherwise,
with respect to, or otherwise become responsible for payment of (collectively,
"incur") any Indebtedness (other than Permitted Indebtedness); provided,
however, that if no Default or Event of Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of any such
Indebtedness, the Company may incur Indebtedness (including, without limitation,
Acquired Indebtedness) and any Subsidiary may incur Acquired Indebtedness, in
each case, if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof (including a pro forma application of the net
proceeds of such Indebtedness), the Consolidated Fixed Charge Coverage Ratio of
the Company is greater than (a) 2.00 to 1.0, if the date of such incurrence is
on or prior to , 1999, or (b) 2.25 to 1.0, if the date of such
incurrence is after , 1999.
Indebtedness of a Person which is secured by a Lien on an asset acquired by
the Company or a Subsidiary of the Company (whether or not such Indebtedness is
assumed by the acquiring Person) shall be deemed incurred at the time of the
Asset Acquisition.
The Company will not incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated in right of
payment to any other Indebtedness of the Company unless such Indebtedness is
also by its terms (or by the terms of any agreement governing such Indebtedness)
made expressly subordinate in right of payment to the Notes pursuant to
subordination provisions that are substantively identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of the Company.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Subsidiaries to, directly or indirectly, (a) declare
or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or Holding or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or
retire for value, prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes or (d) make any
Investment (other than a Permitted Investment) (each of the foregoing actions
set forth in clauses (a), (b) (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto,
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(i) a Default or an Event of Default shall have occurred and be continuing or
(ii) the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant described
under "-- Limitation on Incurrence of Additional Indebtedness" or (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date and on or prior to
the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (x) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on or prior
to the Reference Date of Qualified Capital Stock of the Company; plus (y)
without duplication of any amounts included in clause (iii)(x) above, 100% of
the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend within
60 days after the date of declaration of such dividend if the dividend would
have been permitted on the date of declaration; (2) the acquisition of any
shares of Capital Stock of the Company, either (A) solely in exchange for shares
of Qualified Capital Stock of the Company or (B) if no Default or Event of
Default shall have occurred and be continuing, through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of shares of Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes, either (A) solely in exchange for shares of
Qualified Capital Stock of the Company, or (B) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (I) shares of Qualified Capital Stock of the Company or (II)
Refinancing Indebtedness; (4) the making of payments by the Company to Holding
pursuant to and in accordance with the Tax Sharing Agreement; (5) the making of
payments by the Company to Holding to pay operating expenses, not to exceed
$500,000 in any fiscal year; (6) payments by the Company to redeem or repurchase
or to enable Holding to redeem or repurchase Capital Stock of Holding or the
Company, as the case may be, or Equity Interests issued to or on behalf of
directors, officers and employees of the Company or any of its Subsidiaries
pursuant to Company policy with respect to employees of the Company or its
Subsidiaries who have died or become disabled or whose employment has been
terminated or pursuant to the terms of employment contracts, other agreements or
employee benefit plans of Holding, the Company or any of its Subsidiaries not to
exceed $300,000 in any fiscal year; provided, however, that if such amount is
not used in its entirety within such fiscal year, the unutilized amount may be
utilized solely in the next succeeding fiscal year; and (7) payments for the
redemption, repurchase or other acquisition of shares of Capital Stock of the
Company in satisfaction of indemnification or similar claims arising under any
merger, consolidation, asset purchase or investment or similar acquisition
agreement, permitted under the Indenture, pursuant to which such shares of
Capital Stock were issued. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2)(B), (6) and (7) shall be included in such calculation.
Not later than the date of making any Restricted Payment (as defined in the
first paragraph of this covenant), the Company shall deliver to the Trustee an
officers' certificate stating that such Restricted Payment complies with the
Indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon the
Company's latest available internal quarterly financial statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (a) the Company or the
applicable Subsidiary of the Company, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (b) at least 90% of the consideration received by
the Company or the Subsidiary of the Company, as the case may
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be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; and (c) upon the consummation of an
Asset Sale, the Company shall apply, or cause such Subsidiary to apply, the Net
Cash Proceeds relating to such Asset Sale within 270 days of receipt thereof
either (i) to the extent the properties or assets that were the subject to such
Asset Sale constitute collateral under the Credit Agreement, to prepay any
Indebtedness under the Credit Agreement and effect a permanent reduction in the
availability under the Credit Agreement, (ii) to make an investment in
properties or assets that replace the properties or assets that were the subject
of such Asset Sale or in properties or assets that will be used in the business
of the Company and its Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"), or (iii) a
combination of prepayment and investment permitted by the foregoing clauses
(c)(i) and (c)(ii). On the 271st day after an Asset Sale or such earlier date,
if any, as the Board of Directors of the Company determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (c)(i),
(c)(ii) and (c)(iii) of the next preceding sentence (each, a "Net Proceeds Offer
Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (c)(i), (c)(ii) and (c)(iii) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Subsidiary, as
the case may be, to make an offer to purchase (a "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that principal amount of Notes equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest, if any, thereon to the date of
purchase; provided, however,that if at any time any non-cash consideration
received by the Company or any Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5,000,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "-- Merger, Consolidation and Sale of
Assets," the successor corporation shall be deemed to have sold the properties
and assets of the Company and its Subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Subsidiaries
deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (a) at least 90% of the consideration for
such Asset Sale constitutes Replacement Assets and (b) such Asset Sale is for
fair market value; provided that any consideration not constituting Replacement
Assets received by the Company or any of its Subsidiaries in connection with any
Asset Sale permitted to be consummated under this paragraph shall constitute Net
Cash Proceeds subject to the provisions of the two immediately preceding
paragraphs.
Notice of each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes with an aggregate principal amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders will be purchased on a pro rata basis (based
on principal amounts tendered). A Net Proceeds Offer shall remain open for a
period of 20 business days or such longer period as may be required by law.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Subsidiary of
the Company; or (c) transfer any of its property or assets to the Company or any
other Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (i) applicable law; (ii) the Indenture; (iii)
the Credit Agreement; (iv) customary non-assignment provisions of any contract
or any lease governing a leasehold interest of any Subsidiary of the Company;
(v) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired; (vi) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (vii) Purchase Money
Indebtedness for property or assets acquired that impose restrictions only on
the property or assets so acquired; or (viii) an agreement governing Refinancing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (ii), (iii), (v), (vi) or (vii)
above; provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are no less favorable
to the Holders in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in the applicable
agreement referred to in such clause (ii), (iii), (v), (vi) or (vii).
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Subsidiary of the Company) or permit any Person (other than the Company
or a Subsidiary of the Company) to own any Preferred Stock of any Subsidiary of
the Company.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Subsidiaries, whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (a) in
the case of Liens securing Indebtedness that is expressly subordinate or junior
in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (b) in
all other cases, the Notes are equally and ratably secured, except for (i) Liens
existing as of the Issue Date to the extent and in the manner such Liens are in
effect on the Issue Date; (ii) Liens securing the Notes; (iii) Liens of the
Company or a Subsidiary of the Company on assets of any Subsidiary; (iv) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens (x) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (y) do not extend to
or cover any property or assets of the Company or any of its Subsidiaries not
securing the Indebtedness so Refinanced; and (v) Permitted Liens.
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Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and its
Subsidiaries), whether as an entirety or substantially as an entirety to any
Person unless: (a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and its Subsidiaries substantially as an
entirety (the "Surviving Entity") (x) shall be a corporation organized and
validly existing under the laws of the United States or any state thereof or the
District of Columbia and (y) shall expressly assume, by supplemental indenture
(in form and substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment of the principal of, premium, if any,
and interest on all of the Notes and the performance of every covenant of the
Notes and the Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including giving effect to any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the covenant described under "--
Limitation on Incurrence of Additional Indebtedness"; (c) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including, without limitation, giving
effect to any Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (d) the Company or
the Surviving Entity, as the case may be, shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
in which the Company is not the continuing corporation, the successor Person
formed by such consolidation or into which the Company is merged or to which
such conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
and the Notes with the same effect as if such surviving entity had been named as
such and the Company shall be discharged from its obligations under the
Indenture and the Notes.
Limitations on Transactions With Affiliates. (a) The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into
or permit to exist any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of their respective
Affiliates (each an "Affiliate Transaction"), other than (i) Affiliate
Transactions permitted under paragraph (b) of this covenant and (ii) Affiliate
Transactions on terms that are no less favorable to the Company or the
applicable Subsidiary of the Company than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions which
are similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $1,000,000 shall be
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approved by the Board of Directors of the Company, such approval to be evidenced
by a Board Resolution stating that such Board of Directors has determined that
such transaction complies with the foregoing provisions. If the Company or any
Subsidiary of the Company enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5,000,000, the Company shall, prior to
the consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Subsidiary of the Company, as the case may be, from a financial point of view,
from an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary
of the Company as determined in good faith by the Company's Board of Directors;
(ii) transactions exclusively between or among the Company and any of its
Subsidiaries or exclusively between or among such Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) Restricted
Payments permitted by the Indenture; (iv) payments made pursuant to the Advisory
Services Agreement; (v) payments made pursuant to and in accordance with the BP
Note and (vi) any agreement as in effect on the Issue Date.
Conduct of Business. The Company and its Subsidiaries will not engage in
any businesses which are not the same, similar or related to the businesses in
which the Company and its Subsidiaries are engaged on the Issue Date.
Future Subsidiary Guarantors. The Indenture will provide that the Company
shall cause each Subsidiary of the Company which, after the date of the
Indenture, becomes a guarantor under the Credit Agreement to execute and deliver
an indenture supplemental to the Indenture and thereby become a Guarantor which
shall be bound by the Guarantee of the Notes in the form set forth in the
Indenture (without such Guarantor being required to execute and deliver a
Guarantee endorsed on the Notes).
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of Sections 314(a)
of the TIA.
EVENTS OF DEFAULT
The following events will be defined in the Indenture as "Events of
Default":
(a) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(b) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(c) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the covenant
described under "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets," which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
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(d) a default under 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 of any Subsidiary of the Company (or the
payment of which is guaranteed by the Company or any Subsidiary of the
Company), whether such Indebtedness now exists or is created after the
Issue Date, which default (i) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness after any applicable
grace period provided in such Indebtedness on the date of such default (a
"payment default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the maturity
of which has been so accelerated, aggregates at least $5,000,000;
(e) one or more judgments in an aggregate amount in excess of
$3,000,000 (which are not covered by (i) insurance as to which the insurer
has not disclaimed coverage or (ii) indemnification under the
Recapitalization Agreement as to which BP has not disputed entitlement)
shall have been rendered against the Company or any of its Subsidiaries and
such judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
(f) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(f) above) shall occur and be continuing, the Trustee or the Holders of at least
25% in principal amount of outstanding Notes may declare the principal of,
premium, if any, and accrued and unpaid interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration," and the
same shall become immediately due and payable. If an Event of Default specified
in clause (f) above occurs and is continuing, then all unpaid principal of, and
premium, if any, and accrued and unpaid interest on all of the outstanding Notes
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (a) if the rescission would not
conflict with any judgment or decree, (b) if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration, (c) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in clause (f) of the description of
Events of Default above, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes 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.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers
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shall provide such certification at least annually whether or not they know of
any Default or Event of Default) that has occurred and, if applicable, describe
such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, and satisfied all of its obligations with respect to the Notes, except
for (a) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due, (b)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "-- Events of Default" will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in United States dollars, non-callable United States
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the Notes
on the stated date for payment thereof or on the applicable redemption date, as
the case may be; (b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (d) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (e) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (f) the Company shall
have delivered to the Trustee an officers' certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders over any
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others; (g) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, reasonably satisfactory to the Trustee, each stating that
all conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with; (h) the
Company shall have delivered to the Trustee an opinion of counsel, reasonably
satisfactory to the Trustee, to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (i) certain other customary conditions precedent are
satisfied.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (a) either (i) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under the Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (a) reduce the amount of Notes whose Holders must consent to an
amendment; (b) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (c)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(d) make any Notes payable in money other than that stated in the Notes; (e)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of Notes to waive Defaults or Events
of Default; (f) amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the event of
a Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; or (g) modify or change any provision of the
Indenture or the related definitions affecting ranking of the Notes in a manner
which adversely affects the Holders.
GOVERNING LAW
The Indenture will provide that the Indenture and the Notes will be
governed by and construed in accordance with the laws of the State of New York,
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
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The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or a
Guarantor, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustee will be permitted to engage in other
transactions; provided that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms to be used in
the Indenture. Reference is made to the form of Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person merges or consolidates with the
Company or any of its Subsidiaries or assumed by the Company or a Subsidiary of
the Company in connection with the acquisition of assets from such Person and in
each case not incurred in connection with, or in anticipation or contemplation
of, such acquisition, merger or consolidation.
"Advisory Services Agreement" means the advisory services agreement by and
between the Company and Kirtland Capital Corporation, as such agreement may be
amended.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Certain
Covenants -- Limitations on Transactions with Affiliates."
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall be merged with or into the Company or any Subsidiary of the Company, or
(b) the acquisition by the Company or any Subsidiary of the Company of the
assets of any Person (other than a Subsidiary of the Company) which constitute
all or substantially all of the assets of such Person or comprises any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (including any Sale and Leaseback Transaction) to any Person
other than the Company or a Subsidiary of the Company of (a) any Capital Stock
of any Subsidiary of the Company; or (b) any other property or assets of the
Company or any Subsidiary of the Company other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Subsidiaries receive aggregate consideration of less than $500,000 and (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets."
"Board of Directors" means, as to any Person, the board of directors or
other equivalent governing body of such Person or any duly authorized committee
thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"BP" means the British Petroleum Company plc and any of its Subsidiaries.
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"BP Note" means the promissory note of the Company dated as of
, 1996 in favor of BP Exploration (Alaska) Inc., a Delaware
corporation, in the original principal amount of $7,000,000.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means (a) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (b) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank (including the Trustee)
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any United States branch of a foreign bank having at
the date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (e) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (a) above entered
into with any bank meeting the qualifications specified in clause (d) above; and
(f) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (a) through (e) of this
definition including funds managed and advised by the Trustee or an affiliate of
the Trustee and for which the Trustee or an affiliate of the Trustee receives
payment.
"Change of Control" means the occurrence of one or more of the following
events: (a) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company or Holdings to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the Indenture) other than Permitted Holder(s);
(b) the approval by the holders of Capital Stock of the Company of any plan or
proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of the Indenture); (c) any Person or
Group (other than the Permitted Holders(s)) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company or Holdings; or (d) the replacement of a majority
of the Board of Directors of the Company or Holdings over a two-year period from
the directors who constituted the Board of Directors of the Company or Holdings,
as the case may be, at the beginning of such period, and such replacement shall
not have been approved by a vote of at least a majority of the Board of
Directors of the Company or Holdings, as the case may be, then still in office
who either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was previously
so approved.
"Change of Control Offer" has the meaning set forth under "-- Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "-- Change
of Control."
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
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"Commission" means the Securities and Exchange Commission.
"Company" means the Unifrax Investment Corp., a Delaware corporation.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has
been reduced thereby, (i) all income taxes of the Company and its Subsidiaries
paid or accrued in accordance with GAAP for such period (other than income taxes
attributable to extraordinary, unusual or nonrecurring gains or losses or taxes
attributable to sales or dispositions outside the ordinary course of business),
(ii) Consolidated Interest Expense, (iii) Consolidated Non-cash Charges, and
(iv) expenses associated with voluntary health studies undertaken by the Company
to develop new types of industrial fibers with physical and chemical properties
to help reduce the potential risks associated with ceramic fiber not to exceed
$1,250,000 in any consecutive 12-month period, less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for the Company and its Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis, in accordance with Article 11 of Regulation S-X under the
Securities Act of 1933, as amended, for the period of such calculation to (a)
the incurrence or repayment of any Indebtedness of the Company or any of its
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Subsidiaries incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If the
Company or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if the Company or such Subsidiary,
as the case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (iii) notwithstanding clause (i) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Subsidiaries prior to the stated maturity
thereof
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pursuant to the agreements governing such Indebtedness), plus (b) the product of
(i) the amount of all dividend payments on any series of Preferred Stock of the
Company (other than dividends paid in Qualified Capital Stock) paid, accrued or
scheduled to be paid or accrued during such period times (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the
then-current effective consolidated federal, state and local income tax rate of
the Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without limitation, (i)
any amortization of original issue discount, (ii) the net costs under Interest
Swap Obligations, (iii) all capitalized interest and (iv) the interest portion
of any deferred payment obligation; and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains, (c) the net income of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it is merged or consolidated with the Company or any Subsidiary of the
Company, (d) the net income (but not loss) of any Subsidiary of the Company to
the extent that the declaration of dividends or similar distributions by such
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Subsidiary of the
Company, except to the extent of cash dividends or distributions paid to the
Company or to a Subsidiary of the Company by such Person, (f) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (g) in the case of a successor to the Company
by consolidation or merger or as a transferee of the Company's assets, any net
income (or loss) of the successor corporation prior to such consolidation,
merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-Cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and its Subsidiaries reducing Consolidated Net Income of the Company
for such period, determined on a consolidated basis in accordance with GAAP
(excluding any such charges constituting an extraordinary item or loss or any
such charge which requires an accrual of or a reserve for cash charges for any
future period).
"Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance
and Covenant Defeasance."
"Credit Agreement" means the Loan and Security Agreement dated as of
, 1996, among the Company, Bank of America Illinois, as agent, and
the lenders party thereto, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the covenant described under "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness") or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or similar agreement or arrangement designed to protect the Company or
any Subsidiary of the Company against fluctuations in currency values.
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"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Equity Interests" means warrants, options or other stock purchase rights
to acquire the Capital Stock of the Company or Holding, as the case may be (but
excluding any debt security which is convertible into or exchangeable for,
Common Stock of the Company or Holding, as the case may be).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a Board Resolution of the Company delivered
to the Trustee.
"Foreign Subsidiaries" means XPE Vertriebs GmbH, a German corporation and
NAF Brasil Ltda., a Brazilian corporation.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantee" means a guarantee, direct or indirect, in any manner, of all or
any part of any Indebtedness.
"Guarantor" means any Subsidiary of the Company that guarantees the
Company's obligations under the Indenture and the Notes after the Issue Date.
"Holding" means Unifrax Holding Co., a Delaware corporation.
"Incur" has the meaning set forth under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication, (a)
all Obligations of such Person for borrowed money, (b) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all Capitalized Lease Obligations of such Person, (d) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (e) all Obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (f) Guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under currency agreements and
interest swap agreements of such Person and (i) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the
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fair market value of such Disqualified Capital Stock, such fair market value
shall be determined reasonably and in good faith by the Board of Directors of
the Company.
"Independent Financial Advisor" means a firm (a) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Subsidiary, as the case may be, or
of the industry. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Capital Stock of any Subsidiary of the Company such
that, after giving effect to any such sale or disposition, it ceases to be a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Capital Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and
Covenant Defeasance."
"Lien" means with respect to any property or assets of any person, any
lien, mortgage or deed of trust, pledge, hypothecation, assignment, security
interest, lien, charge, easement, encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement, any lease in the nature
thereof (but excluding operating leases as defined by GAAP) and any agreement
having substantially the same economic effect as any of the foregoing).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Subsidiaries from such Asset Sale net of (a)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale, (d) appropriate
amounts to be provided by the Company or any Subsidiary of the Company, as the
case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary of
the Company, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale and (e) with respect to any proceeds
received by any Subsidiary of the Company, any dividend or distribution payable
to holders of minority interests in such Subsidiary from the proceeds of such
Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
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"Net proceeds Offer Amount" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under
"-- Certain Covenants -- Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under
"-- Certain Covenants -- Limitation on Asset Sales."
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means Kirtland Capital Partners II, L.P. and Kirtland
Capital Corporation, an Ohio corporation and their Affiliates and any
shareholder or partner thereof.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed (A)
$25,000,000 with respect to the Indebtedness under the term loan facility
as reduced by the aggregate principal amount permanently repaid with the
proceeds of Asset Sales and (B) the greater of $20,000,000 or the amount
available for borrowings with respect to Indebtedness under the revolving
credit facility pursuant to the borrowing base of the Credit Agreement as
reduced by the aggregate principal amount permanently repaid with the
proceeds of Asset Sales less the amount of Indebtedness then outstanding
pursuant to clause (o) hereof;
(c) Indebtedness outstanding on the Issue Date;
(d) Interest Swap Obligations of the Company or a Guarantor covering
Indebtedness of the Company or any of its Subsidiaries and Interest Swap
Obligations of any Subsidiary of the Company covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness permitted under the Indenture to the
extent the notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(e) Indebtedness of a Subsidiary of the Company to the Company or to
another Subsidiary of the Company for so long as such Indebtedness is held
by the Company or such Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Subsidiary of the Company; provided
that if as of any date any Person other than the Company or such Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness under this clause (e) by the issuer of
such Indebtedness;
(f) Indebtedness of the Company to a Subsidiary of the Company for so
long as such Indebtedness is held by such Subsidiary, in each case subject
to no Lien; provided that (i) any Indebtedness of the Company to any
Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (ii) if as of any date any Person other than a Subsidiary of the
Company owns or holds any such Indebtedness or holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness under this clause (f) by the
Company;
(g) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
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(h) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(i) Refinancing Indebtedness;
(j) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(k) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Subsidiaries in an aggregate principal amount not
to exceed $2,000,000 at any one time outstanding;
(l) additional Indebtedness of the Company in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding;
(m) Indebtedness arising from guarantees of loans and advances by
third parties to employees and officers of the Company or its Subsidiaries
in the ordinary course of business for bona fide business purposes,
provided that the aggregate amount of such guarantees when added to the
amount then outstanding pursuant to clause (d) of the definition of
"Permitted Investments" does not exceed $250,000;
(n) Indebtedness arising from the repurchase of Common Stock or Equity
Interests if otherwise permitted under the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" above;
(o) Indebtedness incurred by a Foreign Subsidiary in the ordinary
course of business in the aggregate not to exceed $5,000,000 at any one
time outstanding; and
(p) Guarantees incurred pursuant to the Credit Agreement or clause (o)
above.
"Permitted Investments" means (a) Investments by the Company or any
Subsidiary of the Company in any Person that is or will be immediately after
such Investment a Wholly Owned Subsidiary of the Company or that will merge or
consolidate into the Company or a Wholly Owned Subsidiary of the Company, (b)
Investments in the Company by any Subsidiary of the Company; provided that any
Indebtedness evidencing any such Investment held by a Subsidiary of the Company
is unsecured and subordinated, pursuant to a written agreement, to the Company's
obligations under the Notes and the Indenture; (c) investments in cash and Cash
Equivalents; (d) loans and advances to employees and officers of the Company or
any of the Subsidiaries of the Company in the ordinary course of business for
bona fide business purposes provided that the aggregate amount of such loans and
advances when added to the amount outstanding pursuant to clause (l) of the
definition of "Permitted Indebtedness" does exceed $250,000 at any one time
outstanding; (e) Interest Swap Obligations and Currency Agreements entered into
in the ordinary course of the Company's or its Subsidiaries' businesses and
otherwise in compliance with the Indenture; (f) Investments in securities of
trade creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (g) Investments made by the Company or its Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with the covenant described under "-- Certain Covenants -- Limitation on Asset
Sales" covenant and (h) Investments by the Company or any Subsidiary of the
Company in Persons other than Wholly Owned Subsidiaries not to exceed $2,000,000
at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or a Subsidiary of the Company, as
the case may be, shall have set aside on its books such reserves as may be
required pursuant to GAAP;
76
<PAGE> 77
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing Purchase Money Indebtedness of the Company or any
Subsidiary of the Company; provided, however, that (i) the Purchase Money
Indebtedness shall not be secured by any property or assets of the Company
or any Subsidiary of the Company other than the property and assets so
acquired and (ii) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
(j) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(k) Liens securing Indebtedness incurred under the Credit Agreement or
pursuant to clause (l) or (o) of the definition of Permitted Indebtedness;
and
(l) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness"; provided that (i) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Subsidiary of
the Company and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a Subsidiary
of the Company and (ii) such Liens do not extend to or cover any property
or assets of the Company or of any of its Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of the Company or a
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
77
<PAGE> 78
"Public Equity Offering" has the meaning set forth under
"-- Redemption -- Optional Redemption upon Public Equity Offerings."
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Subsidiaries incurred in connection with the purchase of property or assets for
the business of the Company and its Subsidiaries and any Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Recapitalization Agreement" means the recapitalization agreement effective
as of June 9, 1996 among Unifrax, Holding, Investment Corp. and BP.
"Reference Date" has the meaning set forth under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Subsidiary of the Company of Indebtedness incurred in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness" covenant (other than pursuant to clause (b), (d), (e),
(f), (g), (h), (j), (k), (l) or (o) of the definition of Permitted
Indebtedness), in each case that does not (i) result in an increase in the
aggregate principal amount of Indebtedness of the Company as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company and its Subsidiaries in connection
with such Refinancing) or (ii) create Indebtedness with (x) a Weighted Average
Life to Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (y) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (1) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (2) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Replacement Assets" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
"Restricted Payment" has the meaning set forth under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of the Company of any property, whether
owned by the Company or any Subsidiary of the Company at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(v)
of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets."
78
<PAGE> 79
"Tax Sharing Agreement" means the agreement between the Company and Holding
as such Tax Sharing Agreement is in effect on the Issue Date and as the same may
be amended pursuant to any amendment, alteration, modification or waiver thereto
that is not materially adverse to the interests of the Company or the Holders.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign subsidiary, directors' qualifying shares or immaterial amounts of shares
required to be owned by other Persons pursuant to applicable law) are owned by
such Person or any Wholly Owned Subsidiary of such Person.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among Investment Corp. and BT Securities Corporation
and NationsBanc Capital Markets, Inc. (together, the "Underwriters"), the
Underwriters have severally agreed to purchase from Investment Corp., and
Investment Corp. has agreed to sell to the Underwriters severally, the entire
principal amount of the Notes offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Notes is subject to the approval of
certain legal matters by counsel and to various other conditions. The nature of
each Underwriter's obligation is such that each is committed to purchase the
aggregate principal amount of Notes set forth opposite its name if any Notes are
purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ------------ ----------------
<S> <C>
BT Securities Corporation.................................................. $
NationsBanc Capital Markets, Inc...........................................
----------------
Total.................................................................... $100,000,000
===============
</TABLE>
The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page hereof, and to certain dealers
at such price less a concession not in excess of % of the principal amount
of the Notes offered hereby. After the public offering of the Notes offered
hereby, the public offering price and other selling terms may be changed.
Investment Corp. does not intend to apply for listing of the Notes on a
national securities exchange. Investment Corp. has been advised by the
Underwriters that they presently intend to make a market in the Notes, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the Notes, and any such market making
may be discontinued at any time at the sole discretion of the Underwriters.
There can be no assurance that an active public market for the Notes will
develop.
Investment Corp. has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Notes being offered hereby will be passed upon for
Investment Corp. by Baker & Hostetler, Cleveland, Ohio. Certain legal matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York. From time
to time, Baker & Hostetler represents The British Petroleum Company plc and
certain of its affiliates in certain matters.
79
<PAGE> 80
EXPERTS
The financial statements of the North American Fibers Division of Unifrax
Corporation at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, and the balance sheet of Unifrax Investment
Corp. as of August 20, 1996 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
With respect to the unaudited combined interim financial information for
the six-month periods ended June 30, 1995 and 1996 of Unifrax Corporation, XPE
Vertriebs GmbH and NAF Brasil Ltda., appearing elsewhere herein and in the
Registration Statement, Ernst & Young LLP have reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report, included elsewhere herein,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on such
information should be restricted in light of the limited nature of the review
procedures applied. The independent auditors are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 (the "Act") for their
report on the unaudited interim financial information because that report is not
a "report" or a "part" of the Registration Statement prepared or certified by
the auditors within the meaning of Sections 7 and 11 of the Act.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, with respect to the Notes offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. For further information with respect to the Company
and the Notes, reference is hereby made to the Registration Statement and such
exhibits and schedules filed as a part thereof, which may be inspected, without
charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048, and at Northwest Atrium Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661. (The Commission maintains
a site on the World Wide Web containing reports, proxy materials, information
statements and other items. The address is http://www.sec.gov). Copies of all or
any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, upon payment of prescribed fees.
80
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNIFRAX INVESTMENT CORP.:
Report of Independent Auditors........................................................ F-2
Balance Sheet as of August 20, 1996................................................... F-3
Note to Balance Sheet................................................................. F-4
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION:
Report of Independent Auditors........................................................ F-5
Balance Sheets as of December 31, 1994 and 1995....................................... F-6
Statements of Income for the years ended December 31, 1993, 1994 and 1995............. F-7
Statement of Changes in Parent Company Investment for the years ended December 31,
1993, 1994 and 1995................................................................. F-8
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995......... F-9
Notes to Financial Statements......................................................... F-10
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH AND NAF BRASIL LDTA:
Independent Accountants' Review Report................................................ F-21
Combined Balance Sheets as of June 30, 1995 and 1996 (unaudited)...................... F-22
Combined Statements of Income for the six months ended June 30, 1995 and 1996
(unaudited)......................................................................... F-23
Combined Statement of Changes in Parent Company Investment for the six months ended
June 30, 1995 and 1996 (unaudited).................................................. F-24
Combined Statements of Cash Flows for the six months ended June 30, 1995 and 1996
(unaudited)......................................................................... F-25
Notes to Interim Combined Financial Statements (unaudited)............................ F-26
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Unifrax Investment Corp.
We have audited the accompanying balance sheet of Unifrax Investment Corp. at
August 20, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Unifrax Investment Corp. at August
20, 1996 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Buffalo, New York
August 20, 1996
F-2
<PAGE> 83
UNIFRAX INVESTMENT CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 20,
1996
----------
<S> <C>
Cash.............................................................................. $1,000
======
SHAREHOLDER'S EQUITY
Common stock, no par value; 1,000 shares authorized; 1,000 shares issued and
outstanding..................................................................... $ 10
Additional paid-in capital........................................................ 990
------
$1,000
======
</TABLE>
See accompanying note.
F-3
<PAGE> 84
UNIFRAX INVESTMENT CORP.
NOTE TO BALANCE SHEET
1. ORGANIZATION
Unifrax Investment Corp. was organized for the purpose of obtaining funds
through a public offering of debt securities to be used to partially finance a
stock redemption by Unifrax Corporation, an indirect wholly-owned subsidiary of
BP America Inc. and ultimately of The British Petroleum Company plc ("BP"), in
connection with a recapitalization and acquisition of Unifrax Corporation and
two related sales corporations located in Germany and Brazil, which are owned by
BP International Limited, a wholly-owned subsidiary of BP, by Unifrax Holding
Co.
Unifrax Investment Corp. was incorporated in Delaware on August 20, 1996.
F-4
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
Board of Directors
BP America Inc.
We have audited the accompanying balance sheets of the North American
Fibers Division of Unifrax Corporation (the "Division") at December 31, 1994 and
1995 and the related statements of income, changes in parent company investment
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Division at December 31,
1994 and 1995 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1993 the Division
changed its method of accounting for postretirement benefits other than
pensions.
/s/ ERNST & YOUNG LLP
Buffalo, New York
April 19, 1996
Except for Notes 1 and 14, as to which the date is
June 9, 1996
F-5
<PAGE> 86
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 98 $ 37
Accounts receivable, trade, less allowances of $1,337 and $919,
respectively......................................................... 13,380 13,675
Accounts receivable, affiliates......................................... 2,295 598
Inventories............................................................. 7,820 7,701
Deferred income taxes................................................... 2,783 2,465
Prepaid expenses and other current assets............................... 152 181
------- -------
Total current assets...................................................... 26,528 24,657
Property, plant and equipment, net........................................ 30,076 29,288
Other assets.............................................................. 293 294
------- -------
$56,897 $54,239
======= =======
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable........................................................ $ 2,354 $ 3,081
Accrued expenses........................................................ 7,486 6,813
------- -------
Total current liabilities................................................. 9,840 9,894
Accrued postretirement benefit cost....................................... 4,878 4,986
Deferred income taxes..................................................... 3,825 3,535
Other long-term obligations............................................... 400 400
------- -------
Total liabilities......................................................... 18,943 18,815
Parent company investment -- excess of assets over liabilities............ 37,954 35,424
------- -------
$56,897 $54,239
======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 87
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
Outside....................................................... $63,864 $71,890 $79,515
Affiliate..................................................... 3,828 4,356 4,549
------- ------- -------
67,692 76,246 84,064
Operating expenses:
Cost of goods sold............................................ 34,153 37,590 40,630
Selling and distribution...................................... 9,932 10,688 11,579
Administration................................................ 5,415 6,279 6,189
Allocated corporate charges................................... 2,800 2,300 2,700
Research and development...................................... 2,247 2,272 2,450
Restructuring charges......................................... 155 -- --
------- ------- -------
54,702 59,129 63,548
------- ------- -------
Operating income................................................ 12,990 17,117 20,516
Other income (expense):
Royalty income, net of related expenses....................... 630 622 953
Miscellaneous................................................. (81) (31) (21)
------- ------- -------
549 591 932
------- ------- -------
Income before income taxes and cumulative effect of change in
accounting principle.......................................... 13,539 17,708 21,448
Provision for income taxes...................................... 5,611 7,256 8,743
------- ------- -------
Income before cumulative effect of change in accounting
principle..................................................... 7,928 10,452 12,705
Cumulative effect of change in accounting principle............. (2,658) -- --
------- ------- -------
Net income...................................................... $ 5,270 $10,452 $12,705
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 88
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
STATEMENT OF CHANGES IN PARENT COMPANY INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1993......................................................... $38,439
Net income......................................................................... 5,270
Net change in parent company advances.............................................. (7,238)
-------
Balance at December 31, 1993....................................................... 36,471
Net income......................................................................... 10,452
Net change in parent company advances.............................................. (8,969)
-------
Balance at December 31, 1994....................................................... 37,954
Net income......................................................................... 12,705
Net change in parent company advances.............................................. (15,235)
-------
Balance at December 31, 1995....................................................... $35,424
=======
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 89
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 5,270 $10,452 $12,705
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization................................. 3,971 4,220 4,301
Provision for deferred income taxes........................... (233) (591) 28
Provision for pension (income) expense........................ (90) (223) 149
Loss (gain) on sales of property, plant and equipment......... 69 (6) 88
Foreign exchange loss (gain).................................. 21 43 (20)
Cumulative effect of change in accounting principle........... 2,658 -- --
Changes in operating assets and liabilities:
Accounts receivable........................................ (2,737) (1,475) 1,422
Inventories................................................ 849 (1,542) 119
Prepaid expenses and other current assets.................. 66 (62) (29)
Accounts payable and accrued expenses...................... 97 350 54
Accrued postretirement benefit cost........................ 231 158 108
------- ------- -------
Cash provided by operating activities........................... 10,172 11,324 18,925
INVESTING ACTIVITIES
Capital expenditures............................................ (3,032) (2,670) (3,404)
Deferred software and other costs............................... -- -- (294)
Proceeds from sales of property, plant and equipment............ 82 92 105
------- ------- -------
Cash used in investing activities............................... (2,950) (2,578) (3,593)
FINANCING ACTIVITIES
Cash transfers to parent company, net........................... (7,134) (8,743) (15,393)
------- ------- -------
Cash used in financing activities............................... (7,134) (8,743) (15,393)
------- ------- -------
Net increase (decrease) in cash................................. 88 3 (61)
Cash -- beginning of year....................................... 7 95 98
------- ------- -------
Cash -- end of year............................................. $ 95 $ 98 $ 37
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 90
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
Unifrax Corporation ("Unifrax"), previously known as The Carborundum
Company ("Carborundum"), is an indirect wholly-owned subsidiary of BP America
Inc. ("BP America") and ultimately of The British Petroleum Company p1c ("BP").
Prior to the sale referred to below, the continuing operations of Unifrax and
related affiliates principally comprised high performance ceramic product
businesses with manufacturing facilities located in the United States, Puerto
Rico, Brazil, Germany, Australia, and the United Kingdom. The North American
Fibers Division of Unifrax (the "Division"), included herein, manufactures heat
resistant ceramic fiber products for automotive, commercial, and industrial
customers primarily throughout North America. Manufacturing facilities are
located in Western New York (Tonawanda, Sanborn, and Amherst) and New Carlisle,
Indiana.
As part of a program to review holdings not related to its core hydrocarbon
and chemicals businesses, in 1994 BP announced its intent to seek potential
buyers for Carborundum, including the Division, and its related domestic and
foreign affiliates (collectively the "Group"). In May 1995, BP entered into an
agreement under the terms of which it agreed to sell principally all continuing
businesses of the Group including Carborundum, but excluding the Division, to
Societe Europeenne des Produits Refractaires and various other affiliates of
Compagnie de Saint-Gobain ("SEPR"). This sale was completed on February 29,
1996. In connection with the sale, Carborundum changed its name to Unifrax
Corporation.
The effects of any divestiture of the Division are not reflected in the
accompanying special-purpose financial statements, which are intended to reflect
the specific assets and liabilities of the operations being sold on a historical
cost basis. The accompanying financial statements include the assets,
liabilities and related operations of the Division expected to be included as
part of any divestiture and exclude the assets, liabilities and related
operations of other Carborundum divisions.
Prior to the sale referred to above, the Division had certain shared assets
and incurred certain common costs which related to both the Division and other
Unifrax operations. As such, for purposes of preparing these special-purpose
financial statements, management of Unifrax made certain allocations of assets,
liabilities and expenses to the Division. Management of the Division believes
that the basis of such allocations is reasonable; however, the amounts could
differ from amounts that would be determined if the Division were operated on a
stand-alone basis (see Note 7).
Under the terms of agreements dated October 14, 1994 and April 19, 1996, BP
America assumed, through an indirect wholly-owned subsidiary, certain assets and
liabilities of Unifrax. Further, under the terms of these agreements, BP
America, among other things, agreed to indemnify Unifrax, including the
Division, for all liabilities, if any, that might result from any claims for
wrongful death or personal injury caused by exposure to refractory ceramic fiber
products manufactured by Unifrax, subject to certain loss retention levels (see
Note 14). This indemnity, upon the execution of an agreement providing for the
sale of Unifrax, or the Division, to an entity not affiliated with BP America,
will be superseded by the sale agreement, which will contain, among other
things, additional provisions necessary to administer the agreement. Assets and
liabilities assumed, or indemnified, by BP America under the terms of these
agreements are not included in the accompanying special-purpose financial
statements.
On June 9, 1996, BP entered into an agreement whereby BP agreed, subject to
future financing, to complete a recapitalization of Unifrax, which will result
in Unifrax Holding Co., an entity controlled by Kirtland Capital Partners, and
BP owning 90% and 10%, respectively, of the common stock of Unifrax. The
agreement contains, among other things, an indemnification by BP, for all
liabilities, if any, that might result from any claims for wrongful death or
personal injury caused by exposure to refractory ceramic fiber products
manufactured by Unifrax, subject to certain cost sharing provisions. The closing
of the transaction is expected to occur in October 1996.
F-10
<PAGE> 91
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Division in the
future or what the financial position, results of operations or cash flows of
the Division would have been if it were a separate, stand-alone entity during
the periods presented (see Note 7).
2. SAINT-GOBAIN SALE
On February 29, 1996, BP completed the sale of principally all continuing
businesses of the Group, including Carborundum, but excluding the Division.
During the years ended December 31 1993, 1994 and 1995, the Division's
sales to businesses included as part of this sale amounted to $3,828 thousand,
$4,356 thousand and $4,549 thousand, respectively.
In connection with this sale, BP and SEPR entered into various agreements
regarding the ongoing relationship between the Division and SEPR subsequent to
the closing of the transaction. Under the terms of certain of these agreements,
among other things, for a period of five years ending on March 1, 2001:
(i) the Division is precluded from selling, outside of the United States,
Canada and Mexico, products licensed to SEPR;
(ii) for products manufactured by the Division that are not covered by the
license agreement, except for expanding paper products, the world-wide
marketing rights of which are retained by the Division, SEPR is the
exclusive distributor of such products outside of the United States,
Canada and Mexico; for certain of these products, SEPR can elect, on a
product by product basis, to manufacture the product and pay a royalty to
the Division;
(iii) die cutting operations associated with expanding paper products in Brazil
and Germany will be performed by SEPR; in lieu of performing the die
cutting, SEPR can elect to obtain a royalty free license to manufacture
expanding paper products outside of the United States, Canada, and Mexico;
and
(iv) the Division is required to provide certain specified technical services
and product information for which, in certain situations, the Division will
receive a royalty.
Note 17 to the financial statements ("Pro Forma Impact of Saint-Gobain
Sale") includes a summary of the pro forma impact of the Saint-Gobain Sale on
the operations of the Division for the year ended December 31, 1995.
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Division recognizes revenue at the time of shipment to the customer.
Sales to affiliates generally reflect prices offered to the Division's highest
volume distributors. The Division provides for probable future returns and
uncollectible accounts as revenue is recognized.
INVENTORIES
Inventories are stated at cost, but not in excess of net realizable value.
The cost of substantially all inventories is determined by the last-in,
first-out method (LIFO).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets which range from 3 years to 20 years for machinery and equipment, and
20 years to 40 years for land improvements and buildings. Expenditures for
renewals and
F-11
<PAGE> 92
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
improvements that extend the useful life of an asset are capitalized.
Expenditures for routine repairs and maintenance are generally charged to
operations when incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
Under the provisions of this accounting standard, asset carrying amounts are
required to be reviewed whenever events or circumstances indicate that such
carrying amounts may not be recoverable. When considered impaired, the
accounting standard requires that the carrying amount of the asset be reduced,
by a charge to income, to its current fair value. With regards to assets to be
disposed of, the accounting standard requires such assets to be reported at the
lower of carrying amount or fair value less cost to sell. Unifrax, and the
Division, adopted SFAS 121 effective January 1, 1996. The adoption of the
accounting standard had no impact on the Division's results of operations or
financial position.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and that are not allocable to current or
future earnings are expensed. Liabilities for environmental costs are recognized
when environmental assessments or clean-ups are probable and the associated
costs can be reasonably estimated. Generally, the timing of these provisions
coincides with the commitment to a formal plan of action or, if earlier, on
divestment or on closure of inactive sites.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, Unifrax adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"). This accounting standard requires companies
to accrue the actuarially determined costs of postretirement benefits other than
pensions during the years that the employee renders the necessary service. Under
Unifrax's previous policy, the annual expense of health care and life insurance
benefits provided to certain retired employees was determined based on the
amount of actual claims incurred and on premiums paid. As a result of Unifrax
electing to immediately recognize the cumulative effect of adopting SFAS 106 as
of January 1, 1993, an after-tax charge of $2,658 thousand ($4,489 thousand
before tax) is included in the Division's 1993 operations.
INCOME TAXES
The results of operations of Unifrax's U.S. subsidiaries, including the
operations of the Division, are included in the consolidated U.S. corporate
income tax return of BP America. The Division's provision for income taxes is
computed as if the Division filed its annual tax returns on a separate company
basis. The current portion of the income tax provision is satisfied by the
Division through a charge or credit to parent company investment.
Income taxes are accounted for under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rate and laws that apply in the periods in which
the deferred tax asset or liability is expected to be realized or settled.
Investment tax credits are accounted for using the flow-through method.
CERAMIC FIBER HEALTH STUDIES
Ceramic fiber health studies (see Note 14), which management of the
Division considers to be an integral part of the business, are generally
undertaken by the Division and other producers of ceramic fiber once every three
to five years. The Division also performs ongoing employee health studies and
conducts tests
F-12
<PAGE> 93
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
as part of new product research and development. The cost of ceramic fiber
health studies are expensed as incurred. Amounts charged to operations during
the years ended December 31, 1993, 1994 and 1995 relating to the cost of these
health studies amounted to $1,115 thousand, $1,819 thousand and $1,329 thousand,
respectively, and are included in administration expense in the accompanying
statements of income.
ACCOUNTING FOR STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123, which must be adopted by the Division in
1996, encourages a fair value-based method of accounting for employee stock
options or similar equity instruments, but allows continued use of the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). Companies
electing to continue to use APB 25 must make pro forma disclosures of net income
and earnings per share as if the fair value-based method had been applied. The
Division has not yet determined whether it will account for stock based
compensation under the provisions of APB 25 or SFAS 123.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
4. INVENTORIES
Major classes of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
------- -------
<S> <C> <C>
Raw material and supplies....................................... $ 1,497 $ 1,309
In-process...................................................... 1,601 1,066
Finished product................................................ 4,057 4,564
------- -------
7,155 6,939
Adjustment to LIFO cost......................................... 665 762
------- -------
$ 7,820 $ 7,701
======= =======
</TABLE>
The cost of inventories determined on the LIFO method exceeds the current
cost of inventories principally as a result of reduced manufacturing costs.
F-13
<PAGE> 94
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
------- -------
<S> <C> <C>
Land and land improvements...................................... $ 1,377 $ 1,712
Buildings....................................................... 15,196 15,555
Machinery, equipment, furniture and fixtures.................... 36,674 37,878
Construction in progress........................................ 1,792 2,472
------- -------
55,039 57,617
Less accumulated depreciation and amortization.................. (24,963) (28,329)
------- -------
$30,076 $29,288
======= =======
</TABLE>
For the years ended December 31, 1993, 1994 and 1995, depreciation expense
amounted to $3,911 thousand, $4,132 thousand and $4,008 thousand, respectively.
6. FINANCING ACTIVITIES
The Division is part of a centralized cash management system whereby all
cash disbursements of the Division are funded by, and all cash receipts are
transferred to, BP America.
7. RELATED PARTY TRANSACTIONS
Certain support services, such as information systems, credit and
collections, payroll, corporate communications and health, safety, and
environmental quality have been provided to all domestic Unifrax businesses on a
centralized basis. Costs for these services were allocated to the businesses
based on usage. The Division was charged for such services in the amount of
$1,245 thousand, $1,295 thousand and $1,191 thousand for the years ended
December 31, 1993, 1994 and 1995, respectively.
In addition, certain other indirect administrative expenses of Unifrax, as
well as research and development activities, except those research and
development activities relating specifically to ceramic fiber businesses, were
allocated to the businesses either based on the level of service provided or
based on the overall cost structure of Unifrax. Amounts allocated to the
Division amounted to $2,800 thousand, $2,300 thousand and $2,700 thousand for
the years ended December 31, 1993, 1994 and 1995, respectively.
In the opinion of management, charges and allocations have been determined
on a reasonable basis; however, they are not necessarily indicative of the level
of expenses which might have been incurred had the Division been operating as a
stand-alone entity. Management estimates the cost for these services on a stand-
alone basis would have been approximately $1,700 thousand per annum for the
years ended December 31, 1993, 1994 and 1995.
As a result of the sale of principally all continuing businesses of Unifrax
except for the Division (see Notes 1 and 2), and the elimination of Unifrax
corporate activities, the Division has a service continuation agreement with
SEPR. Under the terms of the agreement, SEPR will provide certain administrative
services, substantially similar to those services previously provided by Unifrax
centrally, and will charge the Division a service fee, which will approximate
the charges previously received for similar services, for a period of up to six
months. Upon the expiration of this agreement, the Division expects that the
applicable administrative services will be provided internally, or purchased
from other third-party providers.
The Division's property, product and certain other loss exposures are
insured through insurance premiums paid to indirect wholly-owned insurance
subsidiaries of BP. Also, except for the State of New York, for which the
Division was self-insured, the Division, through December 31, 1993, insured its
workers'
F-14
<PAGE> 95
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
compensation obligations through insurance premiums paid to one of the
subsidiaries. On January 1, 1994, the Division became self-insured for all
workers' compensation loss exposures. Insurance premiums charged to operations
for these various insurance categories during the years ended December 31, 1993,
1994 and 1995 amounted to $279 thousand, $243 thousand and $117 thousand,
respectively. Management estimates the cost for these insurance categories on a
stand-alone basis would have been approximately $1,000 thousand per annum for
the years ended December 31, 1993, 1994 and 1995.
The Division historically performed research and development activities for
all Unifrax ceramic fiber businesses and performed certain research and
development services for a joint venture affiliated with Unifrax. The Division
granted licenses to the ceramic fiber businesses located outside of North
America and to the joint venture to use the technology developed and charged a
royalty based upon the level of sales of products manufactured at such
businesses. The amounts charged to these businesses totaled $687 thousand, $709
thousand and $884 thousand for the years ended December 31, 1993, 1994 and 1995,
respectively, and is included in royalty income, net of related expenses, in the
accompanying statements of income. As discussed in Note 2, the Division, for a
period of five years ending on March 1, 2001, will continue to provide ceramic
fiber businesses located outside of North America with specified technical
services and product information for which, in certain situations, the Division
will receive a royalty (see Note 17).
The Division periodically enters into product purchase transactions with
certain BP affiliates and other Unifrax businesses. Purchases from such entities
during the years ended December 31, 1993, 1994 and 1995 totaled $3,095 thousand,
$3,285 thousand and $1,073 thousand, respectively.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------ ------
<S> <C> <C>
Employee benefit accruals......................................... $1,957 $2,083
Ceramic fiber product stewardship and monitoring.................. 1,192 1,168
Other............................................................. 4,337 3,562
------ ------
$7,486 $6,813
====== ======
</TABLE>
9. RETIREMENT PLANS
The Division participates in defined benefit retirement plans sponsored by
BP America. The defined benefit retirement plans are of two general
types -- flat dollar plans and salary related plans. Flat dollar plans, which
are negotiated with unions, pay benefits based on length of service. Salary
related plans, pertaining to all non-hourly employees, pay benefits based on
length of service and level of compensation. Annual contributions are made to
the defined benefit plans which at least equal the amounts required by law.
Contribution amounts are determined by independent actuaries using an actuarial
cost method that has an objective of providing an adequate fund to meet pension
obligations as they mature. The assets of these plans are held in U.S. and
foreign equity securities, fixed income securities, interest bearing cash and
real estate. Net pension income (expense) allocated to the Division approximated
$90 thousand, $223 thousand and $(149) thousand in 1993, 1994 and 1995,
respectively. Amounts allocated are principally determined based on payroll.
The Division, through BP America, participates in a defined contribution
401(k) plan which is available to substantially all non-union employees of the
Division. Division contributions, representing a 50% matching of employee
contributions up to a maximum of 6% of the employee's base pay, amounted to $281
thousand, $299 thousand and $313 thousand during the years ended December 31,
1993, 1994 and 1995, respectively.
F-15
<PAGE> 96
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Division, through BP America, provides certain health care and life
insurance benefits for retired employees who meet eligibility requirements.
Those benefits are provided through insured and self-insured arrangements. As
discussed in Note 3, Unifrax adopted SFAS 106 effective January 1, 1993. Prior
to 1993, the annual expense of providing benefits to retirees was based on the
amount of actual claims incurred and on premiums paid.
The Division's policy is to fund postretirement benefits as insurance
premiums or claims become due. Amounts allocated to the Division are principally
determined based on employer information.
The following table summarizes the components of net periodic
postretirement benefit expense allocated to the Division for 1993, 1994 and
1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits earned............................. $ 55 $ 89 $ 70
Interest costs.............................................. 380 304 265
---- ---- ----
Net periodic postretirement benefit expense................. $435 $393 $335
==== ==== ====
</TABLE>
The following table presents the status of the unfunded postretirement
benefit obligation allocated to the Division and the amounts recognized in the
Division's balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................ $2,136 $2,340
Employees fully eligible........................................ 720 839
Other active employees.......................................... 1,035 1,605
------ ------
3,891 4,784
Unrecognized net gain............................................. 987 202
------ ------
Accrued postretirement benefit cost............................... $4,878 $4,986
====== ======
</TABLE>
The accumulated postretirement benefit obligation is based on a
weighted-average assumed discount rate of 7.0% at December 31, 1995 (8.5% at
December 31, 1994). The assumed rates of future increases in per capita cost of
health care benefits (health care cost trend rate) for 1996 are 10.4% for those
beneficiaries under age 65 and 8.1% for those beneficiaries age 65 and over,
each declining gradually to 5% for both age groups by the year 2003 and in
subsequent years. Decreasing the discount rate to 7.0% in 1995 increased the
accumulated postretirement benefit obligation by approximately $900 thousand.
The effect of a one percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement benefit obligation
as of December 31, 1995 by approximately $500 thousand and increase the annual
aggregate service and interest cost by approximately $60 thousand.
F-16
<PAGE> 97
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $4,594 $6,179 $6,900
State 1,250 1,668 1,815
------ ------ ------
5,844 7,847 8,715
Deferred (233) (591) 28
------ ------ ------
$5,611 $7,256 $8,743
====== ====== ======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Income before income taxes at 35%......................... $4,739 $6,198 $7,507
Permanent income tax disallowances........................ 24 57 51
Impact of federal rate change on deferred taxes........... 80 -- --
State taxes, net of federal benefit....................... 768 1,001 1,185
------ ------ ------
$5,611 $7,256 $8,743
====== ====== ======
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1994 and
1995, the major components of deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................................. $(5,809) $(5,624)
Other......................................................... (168) (107)
------- -------
Total deferred tax liabilities.................................. (5,977) (5,731)
Deferred tax assets:
Accrued liabilities........................................... 1,948 1,624
Accrued postretirement benefit cost........................... 1,989 2,033
Inventory..................................................... 728 712
Other......................................................... 270 292
------- -------
Total deferred tax assets....................................... 4,935 4,661
------- -------
Net deferred tax liability...................................... $(1,042) $(1,070)
======= =======
</TABLE>
12. LEASE COMMITMENTS AND RENTALS
The Division rents two manufacturing facilities and certain equipment under
various operating leases. The lease agreement for one of the facilities expires
2002 and contains options which allow the Division to extend the lease term for
up to three additional five year periods, or to purchase the facility for a
purchase price determined in accordance with the lease agreement. The lease
agreement for the second facility expires 2004 and contains options which allow
the Division to extend the lease term for up to two additional five year
F-17
<PAGE> 98
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
periods, or to purchase the facility for a purchase price equal to fair value.
Total rental expense for the years ended December 31, 1993, 1994 and 1995
amounted to $1,206 thousand, $1,176 thousand and $1,429 thousand, respectively.
Future minimum lease payments under all non-cancelable operating leases
having a remaining term in excess of one year as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
1996............................... $ 858
1997............................... 838
1998............................... 825
1999............................... 765
2000............................... 774
Thereafter......................... 1,979
</TABLE>
13. SEVERANCE
During 1993, the Division implemented a work force reduction program with
respect to salaried employees. Included in the 1993 operating results is a
charge of $155 thousand relating to the cost of this program. Total employee
separations under the program were 9.
14. CONTINGENCIES
CERAMIC FIBERS
Regulatory agencies and others, including the Division, are currently
conducting scientific research to determine the potential health impact
resulting from the inhalation of airborne ceramic fibers. To date, the results
of this research have been inconclusive as to whether or not ceramic fiber
exposure presents an unreasonable risk to humans. Although not required to do
so, management of the Division intends to undertake a study in 1997, either
separately or in conjunction with other producers of ceramic fibers, to
evaluate, among other things, the physical properties of ceramic fibers having a
redesigned chemistry.
Various legal proceedings and claims have been made against manufacturers
of ceramic fibers, including Unifrax and the Division, alleging death or
personal injury as a result of exposure in the manufacture and handling of
ceramic fiber and other products. The amount of any liability that might
ultimately exist with respect to these claims is presently not determinable.
Consistent with customary practice among manufacturers of ceramic fiber
products, the Division has entered into agreements with distributors of its
product whereby the Division has agreed to indemnify the distributors against
losses resulting from ceramic fiber claims and the costs to defend against such
claims. The amount of any liability that might ultimately exist with respect to
these indemnities is presently not determinable.
Under an agreement with Unifrax, BP America had agreed to indemnify
Unifrax, including the Division, for liabilities, if any, that might result from
an unfavorable outcome of ceramic fiber claims in excess of $100 thousand per
occurrence and $2,500 thousand in the aggregate (see Note 1). This indemnity was
superseded by the Recapitalization Agreement (see Note 1), which provides that
BP or one of its subsidiaries will indemnify Unifrax for such losses, if any,
subject to certain cost sharing provisions. Unifrax, including the Division, and
BP America intend to defend ceramic fiber claims vigorously.
F-18
<PAGE> 99
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL MATTERS
The Division is subject to loss contingencies pursuant to various federal,
state and local environmental laws and regulations. These include possible
obligations to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain chemical or petroleum
substances by the Division or by other parties.
Under agreements with Unifrax, BP America assumed liability, and the rights
to recovery from third parties, for environmental remediation and other similar
required actions with respect to certain environmental obligations of Unifrax,
including certain obligations associated with the North American ceramic fiber
business (see Note 1).
The Division may, in the future, be involved in further environmental
assessments or clean-ups. While the ultimate requirement for any such
remediation, and its cost, is presently not known, and while the amount of any
future costs could be material to the results of operations in the period in
which they are recognized, the Division does not expect these costs, based upon
currently known information and existing requirements, to have a material
adverse effect on its financial position.
The Division owns a site in Sanborn, NY, at which extensive remediation
activity is currently being undertaken. The site has been used by a number of
former Carborundum operations other than the Division, as a result of which,
certain contamination is present in the soil. Neither past nor current
operations of the Division are believed to have contributed to, or to be
contributing to, the existence of the contamination. BP America has assumed
responsibility for implementing remedial activities specified by the State of
New York which required removal of the contamination, chiefly by means of soil
vapor extraction. Efforts to remediate the site are expected to continue for
some time, at a cost to BP America of approximately $12.5 million. Because BP
America has assumed liability for the remediation and has, to date, conducted
the remediation activities without involvement from the Division, the
probability that the Division would be required to make material expenditures
related to the site cleanup is considered remote. In connection with the June 9,
1996 agreement between BP America and Unifrax Holding, BP America will take
title to, and assume all liabilities with respect to, this property upon
completion of the Recapitalization and Unifrax will lease a portion of the
present manufacturing facilities on site. Accordingly, no reserves have been
established in the Division's balance sheet with respect to this property.
OTHER
Various other legal proceedings and claims have been made against the
Division in the ordinary course of business. While the amounts could be material
to the results of operations in the period recognized, in the opinion of
management of the Division, the ultimate liability, if any, resulting from such
matters will not have a material adverse effect on the Division's financial
position.
15. CAPITAL EXPANSION PROJECT
In November 1995, the Division announced that an estimated $14 million
manufacturing facility expansion will be undertaken at the Division's New
Carlisle, Indiana facility. Construction is scheduled to begin in the second
quarter of 1996 and the new facility is expected to be fully operational in late
1997.
16. MAJOR CUSTOMER
The Division had sales to one customer which accounted for approximately
11% of net sales for 1995. No one customer accounted for 10% or more of net
sales in 1993 or 1994.
F-19
<PAGE> 100
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. PRO FORMA IMPACT OF SAINT-GOBAIN SALE (UNAUDITED)
As described in Note 2, in connection with the sale of principally all
continuing businesses of Unifrax, excluding the Division, BP and SEPR entered
into various agreements regarding the ongoing relationship between the Division
and SEPR subsequent to the closing of the sale.
The following pro forma financial information assumes the agreements with
SEPR were in effect at January 1, 1995, and is based on available data and upon
certain assumptions that management of the Division believes are reasonable
under the circumstances. Pro forma adjustments principally comprise the
elimination of certain affiliate sales and royalties and the inclusion of
estimated direct customer and distributor sales under the agreements with SEPR,
as adjusted for the estimated impacts on costs and expenses.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net Sales............................................. $ 84,064 $ (426) $83,638
Operating income...................................... 20,516 (1,127) 19,389
Income before income taxes............................ 21,448 (1,517) 19,931
Net income............................................ 12,705 (895) 11,810
</TABLE>
F-20
<PAGE> 101
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Unifrax Corporation
We have reviewed the accompanying interim combined balanced sheets of
Unifrax Corporation, XPE Vertriebs GmbH and NAF Brasil Ltda. (the "Company") as
of June 30, 1995 and 1996 and the related interim combined statements of income,
changes in parent company investment and cash flows for the six-month periods
then ended. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based upon our reviews, we are not aware of any material modifications that
should be made to the accompanying interim combined financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Buffalo, New York
July 10, 1996
F-21
<PAGE> 102
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH
AND NAF BRASIL LTDA.
COMBINED BALANCE SHEETS
JUNE 30, 1995 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 111 $ --
Accounts receivable, trade, less allowances of $1,338
and $1,147, respectively...................................... 13,875 15,235
Accounts receivable, affiliates................................. 2,158 --
Inventories..................................................... 8,297 8,840
Deferred income taxes........................................... 2,626 2,769
Prepaid expenses and other current assets....................... 196 433
------- -------
Total current assets............................................ 27,263 27,277
Property, plant and equipment, net.............................. 29,156 30,082
Other assets.................................................... 249 544
------- -------
$56,668 $57,903
======= =======
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable.............................................. $ 2,181 $ 3,805
Accrued expenses.............................................. 7,931 8,110
------- -------
Total current liabilities....................................... 10,112 11,915
Accrued postretirement benefit cost............................. 4,945 5,116
Deferred income taxes........................................... 3,679 3,357
Other long-term obligations..................................... 400 400
------- -------
Total liabilities............................................... 19,136 20,788
Parent company investment -- excess of assets over
liabilities................................................... 37,532 37,115
------- -------
$56,668 $57,903
======= =======
</TABLE>
See independent accountants' review report and accompanying notes.
F-22
<PAGE> 103
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH
AND NAF BRASIL LTDA.
COMBINED STATEMENTS OF INCOME
JUNE 30, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales....................................................... $43,036 $45,192
Operating expenses:
Cost of goods sold............................................ 20,803 22,579
Selling and distribution...................................... 6,064 6,418
Administration................................................ 3,218 3,429
Allocated corporate charges................................... 1,350 356
Research and development...................................... 1,372 1,121
------- -------
32,807 33,903
------- -------
Operating income................................................ 10,229 11,289
Other income (expense):
Royalty income, net of related expenses.................... 423 264
Miscellaneous.............................................. (31) (221)
------- -------
392 43
------- -------
Income before income taxes...................................... 10,621 11,332
Provision for income taxes...................................... 4,316 4,697
------- -------
Net income...................................................... $ 6,305 $ 6,635
======= =======
</TABLE>
See independent accountants' review report and accompanying notes.
F-23
<PAGE> 104
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH
AND NAF BRASIL LTDA.
COMBINED STATEMENT OF CHANGES IN PARENT COMPANY INVESTMENT
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Balance -- beginning of period.................................. $37,954 $35,424
Net income...................................................... 6,305 6,635
Net change in parent company advances........................... (6,727) (4,944)
------- -------
Balance -- end of period........................................ $37,532 $37,115
======= =======
</TABLE>
See independent accountants' review report and accompanying notes.
F-24
<PAGE> 105
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH
AND NAF BRASIL LTDA.
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 6,305 $ 6,635
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization................................. 2,094 1,955
Provision for deferred income taxes........................... 11 (482)
Provision for pension expense................................. 120 78
Loss on sales of property, plant and equipment................ 50 157
Changes in operating assets and liabilities:
Accounts receivable........................................... (358) (962)
Inventories................................................... (477) (1,139)
Prepaid expenses and other current assets..................... (44) (252)
Accounts payable and accrued expenses......................... 272 2,021
Accrued postretirement benefit cost........................... 67 130
------- -------
Cash provided by operating activities........................... 8,040 8,141
INVESTING ACTIVITIES
Capital expenditures............................................ (1,193) (2,795)
Deferred software and other costs............................... -- (254)
Proceeds from sales of property, plant and equipment............ 24 --
------- -------
Cash used in investing activities............................... (1,169) (3,049)
FINANCING ACTIVITIES
Cash transfers to parent company, net........................... (6,858) (5,129)
Cash used in financing activities............................... (6,858) (5,129)
------- -------
Net increase (decrease) in cash................................. 13 (37)
Cash -- beginning of period..................................... 98 37
------- -------
Cash -- end of period........................................... $ 111 $ --
======= =======
</TABLE>
See independent accountants' review report and accompanying notes.
F-25
<PAGE> 106
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH AND NAF BRASIL LTDA.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Unifrax Corporation ("Unifrax") is an indirect wholly-owned subsidiary of BP
America Inc. ("BP America") and ultimately of The British Petroleum Company plc
("BP"). The unaudited financial information furnished herein reflects the
combined financial position and combined results of operations of Unifrax and
related sales corporations in Europe (XPE Vertriebs GmbH) and South America (NAF
Brasil Ltda.), which are wholly owned by BP International Limited, a
wholly-owned subsidiary of BP (collectively, the "Company"), and reflects all
adjustments, which in the opinion of management are of a normal recurring
nature, necessary to fairly state the Company's financial position and results
of operations for the periods presented. This information should be read in
conjunction with the audited financial statements of the North American Fibers
Division of Unifrax Corporation for the year ended December 31, 1995.
Prior to February 29, 1996, Unifrax Corporation was known as The Carborundum
Company ("Carborundum") and included a number of divisions and subsidiaries
engaged in various manufacturing businesses. On February 29, 1996, all of the
businesses except for the North American Ceramic Fibers Division (the
"Division") were sold in the Saint-Gobain Sale (see Note 6). Concurrent with the
sale, Carborundum was renamed Unifrax Corporation, and subsequent to the sale,
Unifrax consisted solely of the Division. The financial statements of Unifrax
Corporation (included in the combined financial statements of the Company)
represent only the financial position, results of operations, changes in parent
company investment, and cash flows of the Division as of and for the six month
periods ending June 30, 1995 and 1996.
Subsequent to the Saint-Gobain Sale (see Note 6), the Company began making sales
of certain products through related sales corporations in Europe (XPE Vertriebs
GmbH) and South America (NAF Brasil Ltda.) which were established for that sole
purpose. The unaudited combined financial statements included herein include the
results of these sales corporations. Prior to February 29, 1996, sales of these
products were made to other foreign affiliates of Unifrax, who, in turn, sold to
the final customer. Such sales are included in net sales in the accompanying
unaudited combined statements of income.
On June 9, 1996, BP entered into an agreement whereby BP agreed, subject to
future financing, to complete a recapitalization of the Company, which will
result in Unifrax Holding Co., a wholly-owned subsidiary of Kirtland Capital
Partners, and BP owning 90% and 10%, respectively, of the common stock of the
Company. As part of the recapitalization, BP will contribute their ownership in
XPE Vertriebs GmbH and NAF Brasil Ltda. to Unifrax (to be accounted for at
historical basis), and these companies will become subsidiaries of Unifrax. The
Company expects to close the transaction in October 1996. The effects of any
divestiture of the Company are not reflected in the accompanying financial
statements.
Unifrax has 3,000 authorized shares of $1 par value common stock, of which 100
shares are currently issued and outstanding. XPE Vertriebs GmbH has an
authorized quota of 600,000 deutsche marks, which is fully subscribed, and NAF
Brasil Ltda. has an authorized quota of 500,000 Real, of which 499,999 is
subscribed. Unifrax has historically been accounted for as a division, with no
separately reported equity other than an amount equal to its net assets
captioned as "parent company investment."
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1996.
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Company in the
future or what the financial position, results of operations or
See independent accountants' review report.
F-26
<PAGE> 107
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH AND NAF BRASIL LTDA.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
cash flows of the Company would have been if it were a separate, stand alone
entity during the periods presented.
2. INVENTORIES
Major classes of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw material and supplies...................................... $ 1,382 $ 1,445
In-process..................................................... 1,600 1,142
Finished product............................................... 4,650 5,700
7,632 8,287
Adjustment to LIFO cost........................................ 665 553
------- -------
$ 8,297 $ 8,840
======= =======
</TABLE>
At June 30, 1996, the Company had open purchase commitments for a raw material
used in the manufacturing process totaling approximately $700 thousand.
3. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land and land improvements..................................... $ 1,387 $ 1,709
Buildings...................................................... 15,339 15,574
Machinery, equipment, furniture and fixtures................... 36,973 38,421
Construction in progress....................................... 2,141 4,482
------- -------
55,840 60,186
Less accumulated depreciation and amortization................. 26,684 30,104
------- -------
$29,156 $30,082
======= =======
</TABLE>
For the six month periods ended June 30, 1995 and 1996, depreciation expense
amounted to $2,050 thousand and $1,951 thousand, respectively.
4. CONTINGENCIES
CERAMIC FIBERS
Regulatory agencies and others, including the Company, are currently conducting
scientific research to determine the potential health impact resulting from the
inhalation of airborne ceramic fibers. To date, the results of this research
have been inconclusive as to whether or not ceramic fiber exposure presents an
unreasonable risk to humans. Although not required to do so, management of the
Company intends to undertake a study in 1997, either separately or in
conjunction with other producers of ceramic fibers, to evaluate, among other
things, the physical properties of ceramic fibers having a redesigned chemistry.
Various legal proceedings and claims have been made against manufacturers of
ceramic fibers, including the Company, alleging death or personal injury as a
result of exposure in the manufacture and handling of ceramic fiber and other
products. The amount of any liability that might ultimately exist with respect
to these claims is presently not determinable.
See independent accountants' review report.
F-27
<PAGE> 108
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH AND NAF BRASIL LTDA.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Consistent with customary practice among manufacturers of ceramic fiber
products, the Company has entered into agreements with distributors of its
product whereby the Company has agreed to indemnify the distributors against
losses resulting from ceramic fiber claims and the costs to defend against such
claims. The amount of any liability that might ultimately exist with respect to
these claims is presently not determinable.
Under an agreement with Unifrax, BP America had agreed to indemnify the Company
for liabilities, if any, that might result from an unfavorable outcome of
ceramic fiber claims in excess of $100 thousand per occurrence and $2,500
thousand in the aggregate. This indemnity was superseded by the Recapitalization
Agreement (see Note 1), which provides that BP, or one of its subsidiaries, will
indemnify the Company for such losses, if any, subject to certain cost sharing
provisions. The Company and BP America intend to defend ceramic fiber claims
vigorously.
ENVIRONMENTAL MATTERS
The Company is subject to loss contingencies pursuant to various federal, state
and local environmental laws and regulations. These include possible obligations
to remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical or petroleum substances by the Company
or by other parties.
Under agreements with Unifrax, BP America assumed liability, and the rights to
recovery from third parties, for environmental remediation and other similar
required actions with respect to certain environmental obligations of the
Company.
The Company may, in the future, be involved in further environmental assessments
or clean-ups. While the ultimate requirement for any such remediation, and its
cost, is presently not known, and while the amount of any future costs could be
material to the results of operations in the period in which they are
recognized, the Company does not expect these costs, based upon currently known
information and existing requirements, to have a material adverse effect on its
financial position.
The Division owns a site in Sanborn, NY, at which extensive remediation
activity is currently being undertaken. The site has been used by a number of
former Carborundum operations other than the Division, as a result of which,
certain contamination is present in the soil. Neither past nor current
operations of the Division are believed to have contributed to, or to be
contributing to, the existence of the contamination. BP America has assumed
responsibility for implementing remedial activities specified by the State of
New York which required removal of the contamination, chiefly by means of soil
vapor extraction. Efforts to remediate the site are expected to continue for
some time, at a cost to BP America of approximately $12.5 million. Because BP
America has assumed liability for the remediation and has, to date, conducted
the remediation activities without involvement from the Division, the
probability that the Division would be required to make material expenditures
related to the site cleanup is considered remote. In connection with the June 9,
1996 agreement between BP America and Unifrax Holding, BP America will take
title to, and assume all liabilities with respect to, this property upon
completion of the Recapitalization and Unifrax will lease a portion of the
present manufacturing facilities on site. Accordingly, no reserves have been
established in the Division's balance sheet with respect to this property.
OTHER
Various other legal proceedings and claims have been made against the Company in
the ordinary course of business. While the amounts could be material to the
results of operations in the period recognized, in the opinion of management of
the Company, the ultimate liability, if any, resulting from such matters will
not have a material adverse effect on the Company's financial position.
See independent accountants' review report.
F-28
<PAGE> 109
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH AND NAF BRASIL LTDA.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. CAPITAL EXPANSION PROJECT
In November 1995, the Company announced that an estimated $14 million
manufacturing facility expansion will be undertaken at the Company's New
Carlisle, Indiana facility. Construction began in the second quarter of 1996 and
the new facility is expected to be fully operational in late 1997.
6. SAINT-GOBAIN SALE
On February 29, 1996, BP completed the sale of principally all continuing
businesses of Unifrax, excluding the Company, to Societe Europeenne des Produits
Refractaires and various other affiliates of Compagnie de Saint- Gobain ("SEPR")
(the "Saint-Gobain Sale"). In connection with this sale, BP and SEPR entered
into various agreements regarding the ongoing relationship between the Company
and SEPR subsequent to the closing of the sale. The following pro forma
financial information assumes the agreements with SEPR were in effect January 1,
1996 and is based on available data and upon certain assumptions that management
of the Company believes are reasonable under the circumstances. The pro forma
adjustments principally comprise the elimination of certain affiliate sales and
royalties and the inclusion of estimated direct customer and distributor sales
under the agreements with SEPR, as adjusted for the estimated impacts on costs
and expenses.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales..................................... $ 45,192 $ (71) $45,121
Operating income.............................. 11,289 (188) 11,101
Income before income taxes.................... 11,332 (277) 11,055
Net income.................................... 6,635 (163) 6,472
</TABLE>
See independent accountants' review report.
F-29
<PAGE> 110
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 12
The Recapitalization...................... 19
Use of Proceeds........................... 20
Capitalization............................ 21
Pro Forma Financial Data.................. 22
Selected Historical Financial Data........ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 29
Business.................................. 35
Management................................ 47
Principal Stockholders.................... 53
Certain Relationships and Related
Transactions............................ 54
Description of Credit Agreement and Other
Indebtedness............................ 57
Description of Notes...................... 58
Underwriting.............................. 79
Legal Matters............................. 79
Experts................................... 80
Additional Information.................... 80
Index to Financial Statements............. F-1
</TABLE>
---------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
---------------------------
PROSPECTUS
---------------------------
UNIFRAX [LOGO]
UNIFRAX INVESTMENT CORP.
$100,000,000
% SENIOR NOTES DUE 2003
BT SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Notes being registered. All amounts are estimates except the
Securities and Exchange Commission ("SEC") and National Association of
Securities Dealers, Inc. ("NASD") fees.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee............................................................ $34,483
NASD filing fee................................................................. 10,500
Printing costs.................................................................. 80,000
Legal fees and expenses......................................................... 275,000
Accounting fees and expenses.................................................... 140,000
Blue sky fees and expenses...................................................... 15,000
Trustee fees and expenses....................................................... 7,500
Miscellaneous................................................................... 37,517
--------
Total......................................................................... $600,000
========
<FN>
- ---------------
* To be filed by amendment.
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's By-laws incorporate substantially the provisions of the
General Corporation Law of the State of Delaware providing for indemnification
of directors and officers of the Registrant against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that such person is or was an
officer or director of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee, agent or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
As permitted by Section 102 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation contains provisions eliminating a
director's personal liability for monetary damages to the Registrant and its
stockholders arising from a breach of a director's fiduciary duty except for
liability (a) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under Section
174 of the Delaware General Corporation Law, or (d) for any transaction from
which the director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law provides generally that
a person sued as a director, officer, employee or agent of a corporation may be
indemnified by the corporation for reasonable expenses, including attorney's
fees, if in the case of other than derivative suits he has acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful). In the case of a
derivative suit, an officer, employee or agent of the corporation who is not
protected by the Certificate of Incorporation may be indemnified by the
corporation for reasonable expenses, including attorney's fees, if he has acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall be
made in the case of a derivative suit in respect of any claim as to which an
officer, employee or agent has been adjudged to be liable to the corporation
unless that person is fairly and reasonably entitled to indemnity for proper
expenses. Indemnification is mandatory in the case of a director, officer,
employee, or agent who is successful on the merits in defense of a suit against
him.
II-1
<PAGE> 112
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In August 1996, 1,000 shares of common stock of the Registrant were sold by
the Registrant to Holding for an aggregate offering price of $1,000.00 in a
transaction exempt from the Securities Act pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
2.1* Recapitalization Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1 Form of Indenture (including form of Note)
5.1 Opinion of Baker & Hostetler as to the legality of the securities being registered
10.1 Form of Loan and Security Agreement among Unifrax Corporation, Bank of America
Illinois, as agent, and the lenders party thereto (Credit Agreement)
10.2 1996 Stock Option Plan (to become effective subsequent to consummation of the
Offering)
10.3* Lease relating to Tonawanda plant
10.4* Lease relating to Amherst plant
10.5* Sanborn Lease
10.6** Covenant Not to Compete between The British Petroleum Company plc, its affiliates,
and the Unifrax Corporation and Societe Europeenne des Produits Refractaires, and
its affiliates (portions of this Exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment)
10.7 Product Distribution Agreement between the Unifrax Corporation and Societe
Europeenne des Produits Refractaires (portions of this Exhibit have been omitted
and filed separately with the Commission pursuant to a request for confidential
treatment)
10.8 Distributed Product License Agreement between the Unifrax Corporation and Societe
Europeenne des Produits Refractaires (portions of this Exhibit have been omitted
and filed separately with the Commission pursuant to a request for confidential
treatment)
10.9 License Agreement between the Unifrax Corporation and Societe Europeenne des
Produits Refractaires (portions of this Exhibit have been omitted and filed
separately with the Commission pursuant to a request for confidential treatment)
10.10*** Trademark License and Consent Agreement between the Unifrax Corporation and Societe
Europeenne des Produits Refractaires
10.11 Conversion Agreement between the Unifrax Corporation and Societe Europeenne des
Produits Refractaires (portions of this Exhibit have been omitted and filed
separately with the Commission pursuant to a request for confidential treatment)
10.12** XPE License Agreement between the Unifrax Corporation and Societe Europeenne des
Produits Refractaires
10.13* Form of Covenant Not to Compete between Holding and BP
10.14* Form of Stockholders Agreement among the Company, BPX and Holding
10.15 Tax Sharing Agreement between the Company and Holding
10.16 Advisory Services Agreement between the Company and Kirtland Capital Corporation
10.17* Form of BP Note
12.1* Statement re: Computation of Ratios
23.1 Consent of Ernst & Young LLP
</TABLE>
II-2
<PAGE> 113
<TABLE>
<S> <C>
23.2 Acknowledgment of Ernst & Young LLP
23.3 Consent of Baker & Hostetler (included in their opinion filed as Exhibit 5.1
hereto)
25.1 Statement of Eligibility and Qualification on Form T-1 of, as Trustee under the
Indenture
27.1* Financial Data Schedule
99.1* Consents of Messrs. Kelly, Roos, Lancaster, Manning, Nestor, Turben and Wright to
become directors of Unifrax Corporation
<FN>
- ---------------
* Previously filed
</TABLE>
** Incorporated by reference to the exhibit identified by the same number filed
with Amendment No. 1 to the Registration Statement on Form S-1 of Unifrax
Acquisition Corp. (Registration No. 333-3892)
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included herein:
Schedule II Valuation and qualifying accounts for the years ended December
31, 1993, 1994 and 1995
All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the financial
statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 114
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
NIAGARA FALLS, STATE OF NEW YORK, ON OCTOBER 24, 1996.
UNIFRAX INVESTMENT CORP.
By: /s/ William P.
-----------------------
Kelly
William P. Kelly,
President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------------ -------------------
<S> <C> <C>
/s/ William P. Kelly Director, President and Chief October 24, 1996
- ------------------------ Executive Officer (Principal Executive
William P. Kelly Officer)
/s/ Mark D. Roos Director, Treasurer (Principal Financial October 24, 1996
- ------------------------ Officer and Principal Accounting Officer)
Mark D. Roos
</TABLE>
II-4
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
2.1* Recapitalization Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1 Form of Indenture (including form of Note)
5.1 Opinion of Baker & Hostetler as to the legality of the securities being registered
10.1 Form of Loan and Security Agreement among Unifrax Corporation, Bank of America
Illinois, as agent, and the lenders party thereto (Credit Agreement)
10.2 1996 Stock Option Plan (to become effective subsequent to consummation of the
Offering)
10.3* Lease relating to Tonawanda plant
10.4* Lease relating to Amherst plant
10.5* Sanborn Lease
10.6* Covenant Not to Compete between The British Petroleum Company plc, its affiliates,
and the Unifrax Corporation and Societe Europeenne des Produits Refractaires, and
its affiliates (portions of this Exhibit have been omitted and will be filed
separately with the Commission pursuant to a request for confidential treatment)
10.7 Product Distribution Agreement between the Unifrax Corporation and Societe
Europeenne des Produits Refractaires (portions of this Exhibit have been omitted
and will be filed separately with the Commission pursuant to a request for
confidential treatment)
10.8 Distributed Product License Agreement between the Unifrax Corporation and Societe
Europeenne des Produits Refractaires (portions of this Exhibit have been omitted
and will be filed separately with the Commission pursuant to a request for
confidential treatment)
10.9 License Agreement between the Unifrax Corporation and Societe Europeenne des
Produits Refractaires (portions of this Exhibit have been omitted and will be
filed separately with the Commission pursuant to a request for confidential
treatment)
10.10* Trademark License and Consent Agreement between the Unifrax Corporation and
Societe Europeenne des Produits Refractaires
10.11 Conversion Agreement between the Unifrax Corporation and Societe Europeenne des
Produits Refractaires (portions of this Exhibit have been omitted and will be
filed separately with the Commission pursuant to a request for confidential
treatment)
10.12* XPE(TM) License Agreement between the Unifrax Corporation and Societe Europeenne
des Produits Refractaires
10.13* Form of Covenant Not to Compete between Holding and BP
10.14* Form of Stockholders Agreement among the Company, BPX and Holding
10.15 Tax Sharing Agreement between the Company and Holding
10.16 Management Agreement between the Company and Kirtland Capital Corporation
10.17* Form of BP Note
12.1* Statement re: Computation of Ratios
23.1 Consent of Ernst & Young LLP
23.2 Acknowledgment of Ernst & Young LLP
23.3 Consent of Baker & Hostetler (included in their opinion filed as Exhibit 5.1
hereto)
25.1 Statement of Eligibility and Qualifications on Form T-1 of as Trustee under the
Indenture
27.1* Financial Data Schedule
99.1* Consents of Messrs. Kelly, Roos, Lancaster, Manning, Nestor, Turben and Wright to
become directors of Unifrax Corporation
</TABLE>
- ---------------
* Previously filed
** Incorporated by reference to the exhibit identified by the same number filed
with Amendment No. 1 to the Registration Statement on Form S-1 of Unifrax
Acquisition Corp. (Registration No. 333-3892)
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BP America Inc.
We have audited the balance sheets of the North American Fibers Division of
Unifrax Corporation (the "Division") as of December 31, 1993, 1994 and 1995, and
the related statements of income, changes in parent company investment and cash
flows for the years then ended, and have issued our report thereon dated April
19, 1996 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Division's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Buffalo, New York
April 19, 1996
<PAGE> 117
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
NORTH AMERICAN FIBERS DIVISION OF UNIFRAX CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AT -------------------------
BEGINNING CHARGED TO BALANCE AT
OF CHARGED TO OTHER END OF
DESCRIPTION PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 490 $ 149 $ $ 1(a) $ 638
Allowance for returns................ 847 820 1,386(b) 281
Allowance for obsolescence........... 200 270 270(c) 200
------- ---------- ---------- ---------- ----------
Total.............................. $1,537 $1,239 $ 0 $1,657 $1,119
======= ========== ========== ========== =========
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 506 $ 145 $ 161(a) $ 490
Allowance for returns................ 665 2,036 1,854(b) 847
Allowance for obsolescence........... 268 107 175(c) 200
------- ---------- ---------- ---------- ----------
Total.............................. $1,439 $2,288 $ 0 $2,190 $1,537
======= ========== ========== ========== =========
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 371 $ 144 $ $ 9(a) $ 506
Allowance for returns................ 495 1,150 980(b) 665
Allowance for obsolescence........... 268 146 146(c) 268
------- ---------- ---------- ---------- ----------
Total.............................. $1,134 $1,440 $ 0 $1,135 $1,439
======= ========== ========== ========== =========
<FN>
- ---------------
(a) Uncollectible accounts written off, net of recoveries.
(b) Returns from customers during the year.
(c) Obsolete inventory disposals.
</TABLE>
<PAGE> 1
Exhibit 1.1
UNIFRAX INVESTMENT CORP.
$100,000,000 ___% Senior Notes due 2003
UNDERWRITING AGREEMENT
October __, 1996
BT Securities Corporation
NationsBanc Capital Markets, Inc.
c/o BT Securities Corporation
One Bankers Trust Plaza
New York, New York 10005
Ladies and Gentlemen:
Unifrax Investment Corp., a Delaware corporation ("UIC") and a
wholly-owned subsidiary of Unifrax Holding Co., a Delaware corporation
("Holding") formed by Kirtland Capital Partners II L.P. ("Kirtland"), hereby
confirms its agreement with you (the "Underwriters") as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, UIC proposes to issue and sell to the Underwriters (the "Offering")
$100,000,000 aggregate principal amount of its Senior Notes due 2003 (the
"Notes" or "Securities"). The Notes will be issued pursuant to an indenture (the
"Indenture") to be entered into by UIC, as issuer, and
___________________________ , as trustee (the "Trustee"). PNC Bank, National
Association.
The Notes are being sold in connection with the recapitalization of
Unifrax Corporation, a Delaware corporation ("Unifrax"), pursuant to a
Recapitalization Agreement dated as of June 6, 1996 (as amended through the date
hereof and together with all ancillary agreements entered into in connection
therewith, the "Recapitalization Agreement") by and among UIC, Holding, Unifrax,
and certain subsidiaries of The British Petroleum Company plc ("BP", BP and its
subsidiaries and affiliates are collectively referred to herein as the
"Sellers"). Pursuant to the Recapitalization Agreement, (i) XPE Vertriebs GmbH,
a limited liability company incorporated in Germany, and NAF Brasil Ltda., a
company incorporated in Brazil, will become wholly-owned subsidiaries of Unifrax
(the "Subsidiaries"), (ii) Unifrax will redeem certain shares held by the
Sellers, (iii)
<PAGE> 2
-2-
Holding will acquire 90% of the outstanding capital stock of Unifrax from the
Sellers, with the Sellers retaining the remainder, and (iv) UIC will merge with
and into Unifrax (the "Merger"), with Unifrax surviving the Merger (including
the Subsidiaries, the "Surviving Company") (the "Acquisitions"). The time of
consummation of the Acquisitions is referred to herein as the "Effective Time".
At the Effective Time, the Surviving Company and the Trustee will
enter into a first supplemental indenture to the Indenture (the "Supplemental
Indenture") providing for the express assumption by Unifrax (as survivor of the
Merger) of the covenants, agreements and undertakings of UIC in the Indenture
and under the Notes.
In connection with the Acquisitions and pursuant to the
Recapitalization Agreement, Kirtland and management of Unifrax will invest $27.0
million in Holding (the "Equity Investment") and Unifrax will issue a $7.0
million subordinated promissory note to a subsidiary of BP (the "BP Note").
Concurrent with the consummation of the Acquisitions, Unifrax will execute and
deliver a credit agreement (the "Credit Agreement") consisting of a $25.0
million term loan and a $20.0 million revolving credit facility and borrow
thereunder approximately $25.0 million (the "Credit Facility"). The Offering,
the Equity Investment, the BP Note, and the Credit Facility are referred to
herein as the "Recapitalization".
Unifrax will use the proceeds of the Recapitalization to: (i) pay
affiliates of BP $144.0 million in connection with the Acquisitions; (ii) pay
affiliates of BP $10.0 million as consideration for a non-compete agreement (the
"Non-compete Agreement") between BP and its affiliates and Holding; and (iii)
pay an estimated $5.0 million in fees and expenses relating to the Acquisitions
and Recapitalization.
The Acquisitions and Recapitalization are collectively referred to
as the "Transactions". The Notes, the Indenture, the Supplemental Indenture, and
this Agreement are collectively referred to herein as the "Offering Documents".
The Recapitalization Agreement, the BP Note, the Non-compete Agreement, and the
Credit Agreement are collectively referred to herein as the "Other Transaction
Documents". The Offering Documents and the Other Transaction Documents are
collectively referred to herein as the "Transaction Documents".
<PAGE> 3
-3-
2. Representations and Warranties. UIC represents and warrants to
and agrees with the Underwriters that (it being understood that references in
this Section 2 (other than in subsection (a) or (b) hereof) to the Prospectus,
if not in existence, shall be deemed to be the most recent Preliminary
Prospectus (as defined)):
(a) A registration statement on Form S-1, including a prospectus,
subject to completion, has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(together with the rules and regulations of the Commission promulgated
thereunder, the "Act"), by UIC with respect to the Securities (File No.
333-10611), and one or more amendments to such registration statement also
have been so filed. After the execution of this Agreement, UIC will file
with the Commission either (x) if such registration statement, as it may
have been amended, has been declared by the Commission to be effective
under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall
have been filed, in such registration statement) with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to the execution of this Agreement, or (y) if such
registration statement, as it may have been amended, has not been declared
by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Underwriters prior to
the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at
the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Preliminary Prospectus"
means each prospectus, subject to completion, filed with such registration
statement or any amendment thereto (including the prospectus, subject to
completion, if any, included in such Registration Statement or any
amendment thereto at the time it was or is declared effective); and the
term "Prospectus" means the prospectus included in the Registration
Statement, in the form in which such prospectus was filed with the
Commission pursuant to Rule 424(b) under the Act or, if no
<PAGE> 4
-4-
prospectus is required to be filed pursuant to said Rule 424(b) with
respect to any such Registration Statement, such term means the prospectus
included in such Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was
filed with the Commission it (x) complied in all material respects with
the requirements of the Act and (y) did not include any untrue statement
of a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement or
any amendment thereto was or is declared effective, it (1) contained or
will contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with, the
requirements of the Act and (2) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or any
amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing the Prospectus or amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date (as
defined in Section 3), the Prospectus, as amended or supplemented at such
time, (i) complied or will comply in all material respects with the
requirements of the Act and (ii) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (b) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to UIC
by the Underwriters specifically for use therein or to the Statement of
Eligibility and Qualification (the "Form T-1") under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), of the Trustee filed
as exhibits to the Registration Statement.
<PAGE> 5
-5-
(c) At and as of the Effective Time, the Surviving Company will have
the authorized, issued and outstanding capitalization set forth in the
Prospectus; all of the outstanding shares of capital stock of Holding and
UIC are, and, at and as of the Effective Time, of the Surviving Company
and the Subsidiaries will be, duly authorized and validly issued, fully
paid and nonassessable and not issued in violation of any preemptive or
similar rights; at and as of the Effective Time, Holding will own 90% of
the outstanding shares of capital stock of the Surviving Company and the
Surviving Company will own all of the outstanding shares of capital stock
of each of the Subsidiaries; except as described in the Prospectus, all of
the outstanding shares of capital stock of UIC and Holding are, and, at
and as of the Effective Time, of the Surviving Company and of each of the
Subsidiaries will be, free and clear of all liens, encumbrances, equities
and claims or restrictions on transferability (other than those imposed by
the Act and the securities or "Blue Sky" laws of certain jurisdictions) or
voting; there are no (i) options, warrants or other rights to purchase,
(ii) agreements or other obligations to issue or (iii) other rights to
convert any obligation into, or exchange any securities for, shares of
capital stock of or ownership interests in UIC or Holding or, at and as of
the Effective Time, the Surviving Company. Neither UIC nor Holding (except
for UIC) owns and, at and as of the Effective Time, neither the Surviving
Company (except for the Subsidiaries) nor the Subsidiaries will own,
directly or indirectly, any shares of capital stock or any other equity or
long-term debt securities or have any equity interest in any firm,
partnership, joint venture or other entity.
(d) UIC and Holding have been and, immediately after the Effective
Time, the Surviving Company will have been duly incorporated, and UIC and
Holding are, and immediately after the Effective Time, the Surviving
Company will be, validly existing and in good standing as corporations
under the laws of their jurisdiction of incorporation, with all requisite
corporate power and authority (corporate or otherwise) under such laws,
and will have all necessary authorizations, approvals, orders, licenses,
franchises, consents, certificates and permits of and from regulatory or
governmental officials, bodies and tribunals to own or lease their
properties and conduct their businesses as now conducted and, with respect
to the Surviving
<PAGE> 6
-6-
Company immediately after the Effective Time, as will be conducted, as
described in the Prospectus except as would not have a Material Adverse
Effect (as defined below), and UIC and Holding are, and immediately after
the Effective Time, the Surviving Company will be, duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of their properties or the
conduct of their businesses requires such qualification, except where the
failure to be so qualified would not have (x) a material adverse effect on
the business, condition (financial or other) or results of operations of
UIC and Holding and, immediately after the Effective Time, the Surviving
Company, taken as a whole; or (y) a material adverse effect on the ability
of UIC or Holding and, immediately after the Effective Time, the Surviving
Company to perform any of their material obligations under the Transaction
Documents or any of the material agreements, documents or instruments
contemplated to be entered into by UIC, Holding or the Surviving Company
hereby or by the Prospectus to which such person is a party (any such
event, a "Material Adverse Effect").
(e) UIC has all requisite corporate power and authority to execute,
deliver, and perform each of its obligations under the Notes. The Notes
have been duly and validly authorized by UIC for issuance and conform in
all material respects to the description thereof in the Prospectus. The
Notes, when executed by UIC and authenticated by the Trustee in accordance
with the provisions of the Indenture, and delivered to and paid for by the
Underwriters in accordance with the terms hereof, will have been duly
executed, issued and delivered and will constitute valid and legally
binding obligations of UIC and, following the execution of the
Supplemental Indenture, the Surviving Company, entitled to the benefits of
the Indenture and enforceable against UIC and, following execution of the
Supplemental Indenture, the Surviving Company, as applicable, in
accordance with their terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought (regardless of
whether such enforcement is considered in a proceeding in equity or at
law), (iii) the unenforceability, under certain circumstances, of
provisions imposing penalties, forfeitures,
<PAGE> 7
-7-
late payment charges or an increase in interest rate upon delinquency in
payment or the occurrence of a default, and (iv) the unenforceability of
any provision requiring the payment of attorneys' fees, except to the
extent that a court determines such fees to be reasonable (each of clauses
(i), (ii), (iii), and (iv), an "Enforceability Limitation").
(f) UIC has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Indenture. The Indenture has
been duly authorized by UIC and, when executed and delivered by UIC
(assuming the due authorization, execution and delivery thereof by the
Trustee), will constitute a valid and legally binding agreement of UIC,
enforceable against UIC in accordance with its terms, except that the
enforcement thereof may be subject to the Enforceability Limitations. The
Indenture has been (or, if the Registration Statement has not been
declared effective prior to the execution of this Agreement, at the time
the Registration Statement is declared effective will be) qualified under
the Trust Indenture Act and complies as to form in all material respects
with the requirements of the Trust Indenture Act.
(g) At and as of the Effective Time, the Surviving Company will have
all requisite corporate power and authority to execute, deliver, and
perform its obligations under the Supplemental Indenture. Immediately
after the Effective Time, the Supplemental Indenture will have been duly
and validly authorized by the Surviving Company. The Supplemental
Indenture, when executed and delivered by the Surviving Company (assuming
the due authorization, execution and delivery thereof by the Trustee),
will have been duly executed and delivered and will constitute the valid
and legally binding obligation of the Surviving Company, enforceable
against the Surviving Company in accordance with its terms, except that
the enforcement thereof may be subject to the Enforceability Limitations.
(h) UIC and Holdings have, and immediately after the Effective Time
the Surviving Company will have, all requisite corporate power and
authority to execute, deliver and perform their respective obligations
under each of the Other Transaction Documents (to the extent each is a
party thereto). As of the Closing Date, each of the Other Transaction
Documents will have been duly and validly authorized by UIC and Holding
and immediately after the
<PAGE> 8
-8-
Effective Time by the Surviving Company (to the extent each is a party
thereto); and, when executed and delivered by UIC, Holding, or the
Surviving Company (to the extent each is a party thereto), each such Other
Transaction Document will constitute a valid and legally binding
obligation of such party, to the extent each is a party thereto,
enforceable against each such person in accordance with its terms except
that the enforcement thereof may be subject to the Enforceability
Limitations. The Merger has been duly authorized by UIC and by Holdings as
the sole stockholder of UIC.
(i) UIC and Holding have and, immediately after the Effective Time,
the Surviving Company will have all the necessary corporate power and
authority to execute and deliver this Agreement, to perform their
respective obligations hereunder and to consummate the transactions
contemplated hereby and by the Prospectus. This Agreement has been and the
consummation of the transactions contemplated hereby has been duly and
validly authorized by UIC and Holding. This Agreement has been duly
executed and delivered by UIC and Holding.
(j) Except as described in the Prospectus, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the performance of this Agreement, the Notes, the Indenture,
the Supplemental Indenture or any of the Other Transaction Documents by
UIC or Holding or, immediately after the Effective Time, the Surviving
Company or the consummation by UIC or Holding or, immediately after the
Effective Time, the Surviving Company of any of the transactions
contemplated hereby or thereby or by the Prospectus, except such as have
been obtained or are contemplated to be obtained by the Prospectus and
such as may be required under the Act, the Trust Indenture Act or state
securities or "Blue Sky" laws in connection with the purchase and
distribution of the Notes by the Underwriters, the Acquisitions, or any of
such other transactions. None of UIC or Holding or, immediately after the
Effective Time, the Surviving Company is (i) in violation of its
certificate of incorporation or bylaws, (ii) in violation of any statute,
judgment, decree, order, rule or regulation applicable to any of them or
any of their respective properties or assets which violation would have a
Material Adverse Effect, or (iii) in default in the performance or
observance of any obligation, agreement, covenant or condition
<PAGE> 9
-9-
contained in any contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit, certificate
or other agreement or instrument to which any of them is subject
(collectively, the "Contracts"), which default would have a Material
Adverse Effect.
(k) The execution, delivery and performance by UIC and Holding and,
immediately after the Effective Time, the Surviving Company of the
Transaction Documents (to the extent each such person is a party thereto),
and the consummation by UIC and Holding and, immediately after the
Effective Time, the Surviving Company of the transactions contemplated
hereby, thereby and by the Prospectus will not (after giving effect to all
amendments and waivers obtained on or prior to the Effective Time)
conflict with or constitute or result in a breach or violation of any of
(x) the terms or provisions of, or constitute a default by any of them
under, any of the Contracts, which conflict, breach, violation or default,
individually or in the aggregate, would have a Material Adverse Effect,
(y) the certificate of incorporation or bylaws of any such person, or (z)
any statute, judgment, decree, order, rule or regulation (excluding state
securities and "Blue Sky" laws) of any court or governmental agency or
other body applicable to any such person, or any of their respective
properties, which conflict, breach, violation or default, individually or
in the aggregate, would have a Material Adverse Effect.
(l) Each of the Transactions and Transaction Documents conforms in
all material respects to the description thereof in the Prospectus. All
representations and warranties of UIC and Holding set forth in any of the
Other Tranaction Documents and, to the knowledge of UIC and Holding, of
the Sellers set forth in the Recapitalization Agreement, were true and
correct in all material respects at the time as of which such
representations and warranties were made and will be true and correct in
all material respects at and as of the Closing Date as if made at and as
of such date (other than to the extent any such representation or warranty
is expressly made as to only a certain date).
(m) (x) Immediately after the Effective Time, the fair value and
present fair saleable value of the assets of the Surviving Company will
exceed the sum of its stated liabilities and identified contingent
liabilities; and
<PAGE> 10
-10-
(y) after giving effect to the execution, delivery and performance of the
Transaction Documents and the consummation of the transactions
contemplated thereby and by the Prospectus, UIC is not, nor, at and as of
the Effective Time, will the Surviving Company be, (a) left with
unreasonably small capital with which to carry on its business as it is
proposed to be conducted, (b) unable to pay its debts (contingent or
otherwise) as they mature or (c) insolvent.
(n) The audited financial statements and schedules of the North
American Fibers Division of Unifrax included in each Registration
Statement and the Prospectus present fairly in all material respects the
financial position, results of operations and cash flows of the North
American Fibers Division of Unifrax at the dates and for the periods to
which they relate, and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except as
otherwise stated therein, and the unaudited combined financial statements
of Unifrax and the Subsidiaries, and the related notes included in the
Prospectus present fairly in all material respects the combined financial
position, results of operations and cash flows of Unifrax and the
Subsidiaries at the dates and for the periods to which they relate, and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated
therein.
(o) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Prospectus and
each Registration Statement have been prepared in accordance with
applicable requirements of Regulation S-X promulgated under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and have been
properly computed on the bases described therein. The assumptions used in
the preparation of the pro forma financial statements and other pro forma
financial information included in the Registration Statement and the
Prospectus are reasonable and the adjustments used therein are appropriate
to give effect to the transactions or circumstances referred to therein in
all material respects.
(p) Ernst & Young LLP, which has audited certain of such financial
statements and schedules as set forth in its reports included in the
Registration Statement and the
<PAGE> 11
-11-
Prospectus, is an independent public accounting firm as required by the
Act. The statistical and market-related data included in the Registration
Statement and the Prospectus are based on or derived from sources which
UIC believes to be reliable and accurate in all material respects.
(q) Except as described in the Prospectus there is not pending or,
to the knowledge of UIC or Holding or, immediately after the Effective
Time, the Surviving Company, threatened any action, suit, proceeding,
inquiry or investigation to which UIC or Holding or, immediately
after the Effective Time, the Surviving Company, or to which any of their
respective property is subject, before or brought by any court or
governmental agency or body, which could reasonably be expected to have a
Material Adverse Effect.
(r) UIC and Holding have and, immediately after the Effective Time,
the Surviving Company will have obtained all licenses, permits, franchises
and other governmental authorizations necessary to conduct their
respective business as described in the Prospectus and the lack of which
would have a Material Adverse Effect.
(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
described therein or contemplated thereby, (x) neither of UIC nor Holding
has, and, immediately after the Effective Time, the Surviving Company will
not have, incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, not in the ordinary
course of business and (y) neither UIC nor Holding has, and, immediately
after the Effective Time, the Surviving Company will not have, purchased
any of its respective outstanding capital stock, or declared, paid or
otherwise made any dividend or distribution of any kind on their
respective capital stock or otherwise.
(t) Except as described in the Prospectus or as would not,
individually or in the aggregate, have a Material Adverse Effect (A) each
of UIC and Holding is and, at and as of the Effective Time, the Surviving
Company will be in compliance with and not subject to liability under
applicable Environmental Laws (as defined below), (B) each of UIC and
Holding has and, at and as of the Effective
<PAGE> 12
-12-
Time, the Surviving Company will have made all filings and provided all
notices required under any applicable Environmental Law, and has and is
or, in the case of the Surviving Company, at and as of the Effective Time,
will have and will be in compliance with all Permits required under any
applicable Environmental Laws and each of them is or, in the case of the
Surviving Company, at and as of the Effective Time, will be in full force
and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or
threatened against UIC or Holding or, at and as of the Effective Time, the
Surviving Company under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any Environmental Law
with respect to any assets, facility or property owned, operated, leased
or controlled by UIC or Holding or, at and as of the Effective Time, the
Surviving Company, (E) UIC or Holding has not and, at and as of the
Effective Time, the Surviving Company will not have received notice that
any of them has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), or any comparable state law, (F) no
property or facility of UIC or Holding or, at and as of the Effective
Time, the Surviving Company is (i) listed or, to UIC's knowledge, proposed
for listing on the National Priorities List under CERCLA or is (ii) listed
in the Comprehensive Environmental Response, Compensation, Liability
Information System List promulgated pursuant to CERCLA, or, to UIC's
knowledge, on any comparable list maintained by any state or local
governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder, relating to pollution or protection of public health
and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface
strata), (ii) the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling of hazardous
materials, and (iii) underground and above ground storage tanks and
related
<PAGE> 13
-13-
piping, and emissions, discharges, releases or threatened releases
therefrom.
(u) There is no strike, labor dispute, slowdown or work stoppage
with the employees of UIC or Holding or, at and as of the Effective Time,
the Surviving Company which is pending or, to the knowledge of UIC or
Holding or, at and as of the Effective Time, the Surviving Company,
threatened.
(v) UIC carries and, at and as of the Effective Time, the Surviving
Company will carry insurance (including self-insurance) in such amounts
and covering such risks as would be obtained by companies in the same or
similar businesses in the ordinary course for the conduct of its business
and the value of its properties.
(w) At and as of the Effective Time, the Surviving Company will have
good and marketable title to all real property and good title to all
personal property described in the Prospectus as being owned by it and
good and marketable title to a leasehold estate in the real and personal
property described in the Prospectus as being leased by each of them free
and clear of all liens, charges, encumbrances or restrictions, except as
described in the Prospectus or to the extent the failure to have such
title or the existence of such liens, charges, encumbrances or
restrictions would not, individually or in the aggregate, have a Material
Adverse Effect. All leases, contracts and agreements to which UIC or
Holding is or, at and as of the Effective Time, the Surviving Company will
be a party or by which any of them is bound are valid and enforceable
against UIC or Holding and, at and as of the Effective Time, the Surviving
Company, and are valid and enforceable against the other party or parties
thereto and are in full force and effect with only such exceptions as
would not, individually or in the aggregate, have a Material Adverse
Effect. At and as of the Effective Time, the Surviving Company will own or
possess adequate licenses or other rights to use all patents, trademarks,
service marks, trade names, copyrights and know-how necessary to conduct
the businesses now or proposed to be operated by it as described in the
Prospectus, except as would not, individually or in the aggregate, have a
Material Adverse Effect, and UIC or Holding has not and, at and as of the
Effective Time, the Surviving Company will not have received any notice of
infringement of or conflict with
<PAGE> 14
-14-
(or know of any such infringement of or conflict with) alleged rights of
others with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how which, if such alleged infringement or
conflict were sustained, would have a Material Adverse Effect.
(x) UIC or Holding does not have and, at and as of the Effective
Time, the Surviving Company will not have any liability for any prohibited
transaction or accumulated funding deficiency (within the meaning of
Section 412 of the Code) or any complete or partial withdrawal liability
with respect to any pension, profit sharing or other plan which is subject
to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), to which UIC or Holding or, at and as of the Effective Time,
the Surviving Company makes or ever has made a contribution and in which
any employee of UIC or Holding or, at and as of the Effective Time, the
Surviving Company is or has ever been a participant. With respect to such
plans, UIC or Holding is and, at and as of the Effective Time, the
Surviving Company will be in compliance in all material respects with all
applicable provisions of ERISA.
(y) Neither UIC nor Holding, or any agent acting on behalf of either
of them, has taken or will take any action that might cause this Agreement
or the issuance or sale of the Securities to violate Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System as in effect on
the Closing Date.
(z) Neither UIC nor Holding is now, and after giving effect to the
Acquisitions and the other transactions contemplated by the Prospectus
neither Holding nor the Surviving Company will be, required to register as
an "investment company" or a company "controlled by" an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(aa) Forward-looking statements in the Prospectus are based on
assumptions that UIC believes to be reasonable. The statistical and
market-related data in the Prospectus, are based on or derived from
sources that UIC believes to be reliable and accurate.
(bb) All taxes, assessments, fees and other charges (including,
without limitation, withholding taxes, penalties, and interest) due or
claimed to be due from UIC or
<PAGE> 15
-15-
Holding or, at and as of the Effective Time, the Surviving Company that
are due and payable have been paid, other than those being contested in
good faith or those currently payable without penalty or interest and for
which an adequate reserve or accrual has been established in accordance
with generally accepted accounting principles, and except where the
failure so to pay would not, individually or in the aggregate, have a
Material Adverse Effect. UIC and Holdings know of no actual or proposed
additional tax assessments for any fiscal period against UIC or Holdings,
or, at and as of the Effective Time, the Surviving Company that,
individually or in the aggregate, would have a Material Adverse Effect.
(cc) Except as stated in the Prospectus neither UIC nor Holding
knows of any outstanding claims for services in the nature of a finder's
fee, financial advisory fee, origination fee or similar fee with respect
to the transactions contemplated hereby entered into by UIC or Holding.
(dd) UIC and Holding are and, immediately after the Effective Time,
the Surviving Company will be in compliance with all provisions of Section
517.075 of Florida Statutes 1987, as amended.
(ff) UIC and Holding have delivered to the Underwriters a true and
correct copy of each of the Other Transaction Documents, together with all
related agreements and all schedules and exhibits thereto, and there shall
have been no material amendments, alterations, modifications or waivers of
any of the provisions of any of the Other Transaction Documents since
their respective dates of execution, other than any such amendments,
alterations, modifications and waivers as to which the Underwriters have
not been advised in writing and which would be required to be disclosed in
the Prospectus; and to the best knowledge of UIC there exists no event or
condition which would constitute a default or an event of default under
any of the Other Transaction Documents which would result in a Material
Adverse Effect or materially adversely affect the ability of UIC, Holding,
Unifrax or the Sellers to consummate the transactions contemplated by the
Transaction Documents and the Prospectus.
Any certificate signed by any officer of UIC, Holding, the Surviving
Company or any Subsidiary and delivered to
<PAGE> 16
-16-
the Underwriters or to counsel for the Underwriters shall be deemed a joint and
several representation and warranty by UIC, Holding, the Surviving Company and
each of the Subsidiaries to each Underwriters as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, UIC agrees to issue and
sell to the Underwriters, and each of the Underwriters severally agrees to
purchase from UIC, at % of their principal amount, the respective aggregate
principal amounts of the Notes set forth opposite their respective names on
Exhibit A-1 hereto. The obligations of the Underwriters under this Agreement are
several and not joint. One or more certificates in definitive form for the Notes
that the Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as each
Underwriter requests upon notice to UIC at least two business days prior to the
Closing Date, shall be delivered by or on behalf of UIC, against payment by or
on behalf of the Underwriters, of the purchase price therefor (less an amount
equivalent to payment of interest at the then applicable Federal Funds Rate on
the purchase price of the Securities for one (1) day) by wire transfer or check
of immediately available funds to the account of UIC previously designated by it
in writing. Such delivery of and payment for the Securities shall be made at the
offices of Baker & Hostetler, 3200 National City Center, Cleveland, Ohio 44114,
at 10:00 a.m. local time, on October __, 1996, or at such other place, time or
date as the Underwriters and UIC may agree upon or as the Underwriters may
determine pursuant to Section 7(a) hereof, such time and date of delivery
against payment being herein referred to as the "Closing Date." UIC will make
such certificate or certificates for the Notes available for checking and
packaging by the Underwriters at the offices in [New York, New York] of BT
Securities Corporation at least 24 hours prior to the Closing Date.
4. Offering by the Underwriters. After the Registration Statement
becomes effective, the Underwriters propose to offer for sale to the public the
Securities at the price and upon the terms set forth in the Prospectus. The
Underwriters will notify UIC when such offer and sale has been completed.
5. Certain Covenants. UIC covenants and agrees
with the Underwriters that:
<PAGE> 17
-17-
(a) UIC will use all reasonable efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement,
and any amendments thereto, to become effective promptly. If, at the time
the Registration Statement becomes effective, any information shall have
been omitted therefrom in reliance upon Rule 430A of the rules and
regulations of the Commission under the Act, then immediately following
the execution of this Agreement, UIC will prepare, and thereafter UIC will
file or transmit for filing with the Commission in accordance with such
Rule 430A and Rule 424(b) of the rules and regulations of the Commission
under the Act, copies of an amended Prospectus relating to such
Registration Statement, or, if required by such Rule 430A, a
post-effective amendment to such Registration Statement (including an
amended Prospectus), containing all information so omitted. UIC will give
each Underwriter notice of its intention to file any amendment to any
Registration Statement (including any post-effective amendment) or any
amendment or supplement to any Prospectus (including any revised
prospectus which UIC proposes for use by the Underwriters in connection
with the offering of the Notes which differs from any prospectus on file
at the Commission at the time the Registration Statement including such
prospectus becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the rules and regulations
of the Commission under the Act), will furnish the Underwriters with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such prospectus to which
the Underwriters shall reasonably object in writing or which is not in
compliance with the Act. UIC will advise the Underwriters, promptly after
it receives notice thereof, of the time when the Registration Statement or
any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Underwriters of such filing or
effectiveness.
(b) UIC will, and after the Effective Time, the Surviving Company
will, advise the Underwriters, promptly after receiving notice or
obtaining knowledge thereof, of (i) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
any amendment thereto or any order preventing or
<PAGE> 18
-18-
suspending the use of any Preliminary Prospectus or any Prospectus, or any
amendment or supplement thereto, (ii) the suspension of the qualification
of the Notes for offering or sale in any jurisdiction, (iii) the
institution, threatening or contemplation of any proceeding for any such
purpose or (iv) any request made by the Commission for amending any
Registration Statement, for amending or supplementing the Prospectus or
for additional information. UIC will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) UIC will and, after the Effective Time the Surviving Company
will, cooperate with the Underwriters in arranging for the qualification
of the Notes for offering and sale under the securities or "Blue Sky" laws
of such jurisdictions as the Underwriters may designate and will continue
such qualifications in effect for as long as may be necessary to complete
the initial distribution of the Notes by the Underwriters; provided,
however, that in connection therewith neither UIC or Holding nor the
Surviving Company shall be required to qualify as a foreign corporation or
to execute a general consent to service of process in any jurisdiction, to
take any other action that would subject it to general service of process
or to taxation in respect of doing business or, except at the expense of
the Underwriters, to keep any state qualification effective after one
year.
(d) If, at any time when a Prospectus relating to the Notes is
required to be delivered under the Act, any event shall occur as a result
of which it is necessary, in the opinion of counsel for the Underwriters,
to amend or supplement any Prospectus in order to make such Prospectus not
misleading in light of the circumstances existing at the time it is
delivered to a purchaser, or if for any other reason it shall be necessary
to amend or supplement the Prospectus in order to comply with the Act and
the Exchange Act, UIC shall ,and after the Effective Time the Surviving
Company shall, (subject to Section 5(a)) forthwith amend or supplement
such Prospectus so that, as so amended or supplemented, such Prospectus
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances existing at the time it is delivered to a purchaser,
not misleading and
<PAGE> 19
-19-
will comply with the Act and the Exchange Act, and UIC will, and after the
Effective Time the Surviving Company will, furnish to the Underwriters a
reasonable number of copies of such amendment or supplement.
(e) UIC will, and after the Effective Time the Surviving Company
will, without charge, provide (i) to each Underwriter and to counsel for
the Underwriters a signed copy of each registration statement originally
filed with respect to the Securities and each amendment thereto (in each
case including exhibits thereto) and (ii) so long as a prospectus relating
to the Notes is required to be delivered under the Act, as many copies of
the Preliminary Prospectus or Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(f) Subject to Section 5(a), UIC will, and after the Effective Time,
the Surviving Company will timely complete all required filings and
otherwise comply fully in a timely manner with all provisions of the
Exchange Act and promptly file all reports and any definitive proxy or
information statements required to be filed by the Surviving Company with
the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long as
the delivery of a prospectus is required in connection with the offer or
sale of any of the Notes.
(g) The Surviving Company will make generally available to its
security holders as soon as practicable, but not later than 90 days after
the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the rules and regulations of
the Commission under the Act) covering a twelve-month period beginning not
later than the first day of the fiscal quarter of UIC or the Surviving
Company, as the case may be, next following the "effective date" (as
defined in Rule 158) of the Registration Statement.
(h) If, prior to the completion of the distribution of the Notes,
UIC or Holding or, at and as of the Effective Time, Holding or the
Surviving Company, or any of their subsidiaries, commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has
become effective with the Commission or with the Florida Department of
Banking and Finance (the
<PAGE> 20
-20-
"Department"), whichever date is later, or if the information reported in
the Prospectus, if any, concerning the business of UIC or Holding (or
after giving effect to the Acquisitions, Holding or the Surviving Company)
or any of their subsidiaries with Cuba or with any person or affiliate
located in Cuba changes in any material way, UIC and Holding will provide
the Department notice of such business or change, as appropriate, in a
form acceptable to such Department.
(i) UIC will, and after the Effective Time the Surviving Company
will, apply the net proceeds from the sale of the Notes and the
Recapitalization as set forth in the Prospectus.
(j) Prior to the Closing Date, UIC and Holding will furnish to the
Underwriters, as soon as they have been prepared by or are available to
UIC, a copy of any unaudited interim financial statements of Unifrax or
any unaudited interim combined financial statements of Unifrax and the
Subsidiaries, for any period subsequent to the period covered by the most
recent financial statements appearing in the Registration Statement and
the Prospectus.
6. Expenses. UIC agrees to pay, and after the Effective Time, the
Surviving Company will pay, all costs and expenses incident to the performance
of their obligations under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated pursuant to
Section 10 hereof, including, but not limited to, all costs and expenses
incident to (i) the printing, word processing or other production of documents
with respect to such transactions, including any costs of printing the
registration statement originally filed with respect to the Notes and any
amendments thereto, any Preliminary Prospectus and any Prospectus and any
amendments or supplements thereto, and any "Blue Sky" memoranda, (ii) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by UIC, (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Notes, including trustee's fees, (v) the qualification of the
Notes under state securities and "Blue Sky" laws, including filing fees and
reasonable fees and disbursements of counsel for the Underwriters relating
thereto, (vi) the filing fees of the Commission and the National Association of
Securities Dealers, Inc. relating to
<PAGE> 21
-21-
the Notes, (vii) expenses in connection with any meetings with prospective
investors in the Notes, (viii) fees and expenses of the Trustee, including fees
and expenses of its counsel, (ix) advertising relating to the offering of the
Notes (other than as shall have been specifically approved by the Underwriters
to be paid for by the Underwriters), and (x) any fees charged by investment
rating agencies for the rating of the Notes. If the sale of the Notes provided
for herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated or because of any failure, refusal or inability on the
part of UIC to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Underwriters of their obligations hereunder after all conditions hereunder
have been satisfied in accordance herewith), UIC agrees to promptly reimburse
the Underwriters upon demand for all out-of-pocket expenses (including fees,
disbursements and charges of Cahill Gordon & Reindel, counsel for the
Underwriters) that shall have been incurred by the Underwriters in connection
with the proposed purchase and sale of the Notes.
7. Conditions of the Underwriters' Obligations. The obligation of
the Underwriters to purchase and pay for the Notes are subject to the accuracy
of the representations and warranties contained herein, to the performance by
UIC of its covenants and agreements hereunder and in the sole discretion of the
Underwriters, satisfaction of the following additional conditions unless waived
in writing by the Underwriters:
(a) If the registration statement originally filed with respect to
the Notes, or any amendment thereto filed prior to the Closing Date has
not been declared effective as of the time of execution hereof, such
registration statement or such amendment shall have been declared
effective not later than 12:00 noon, New York City time, on the date on
which the amendment to such registration statement originally filed with
respect to such Notes, or to the Registration Statement, as the case may
be, containing information regarding the initial public offering price of
the Notes has been filed with the Commission, or such later time and date
as shall have been consented to by the Underwriters; if required, the
Prospectus and any amendment or supplement thereto shall have been filed
in accordance with Rule 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement
<PAGE> 22
-22-
or any amendment thereto or the qualification of the Indenture under the
Trust Indenture Act shall have been issued and no proceedings for that
purpose shall have been instituted or to the knowledge of UIC or the
Underwriters, shall be threatened or contemplated by the Commission.
(b) The Underwriters shall have received opinions in form and
substance satisfactory to the Underwriters, dated the Closing Date, of
Baker & Hostetler, counsel for UIC, substantially in the form of Exhibit B
hereto. In addition, the Underwriters shall have received a letter from
counsel to the Sellers dated the Closing Date in form and substance
satisfactory to the Underwriters permitting the Underwriters to rely on
the opinion of counsel to the Sellers in connection with the
Recapitalization Agreement and the Acquisitions.
(c) The Underwriters shall have received an opinion, dated the
Closing Date, of Cahill Gordon & Reindel, counsel for the Underwriters,
with respect to the sufficiency of certain corporate proceedings and other
legal matters relating to this Agreement, and such other related matters
as the Underwriters may require. In rendering such opinion, Cahill Gordon
& Reindel shall have received and may rely upon such certificates and
other documents and information as they may reasonably request to pass
upon such matters. In addition, in rendering their opinion, Cahill Gordon
& Reindel may state that their opinion is limited to matters of New York,
Delaware corporate and federal law.
(d) The Underwriters shall have received from Ernst & Young LLP,
independent public accountants for Unifrax, letters dated, respectively,
the date hereof and the Closing Date, in form and substance satisfactory
to the Underwriters.
(e) The representations and warranties of UIC and Holding contained
in this Agreement shall be true and correct in all material respects on
and as of the Closing Date (other than to the extent any such
representation or warranty is expressly made as to a certain date); UIC
and Holding shall have complied in all material respects with all
agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date.
<PAGE> 23
-23-
(f) Subsequent to the respective dates of the most recent financial
statements of Unifrax and the Subsidiaries contained in the Prospectus,
there shall have been no material adverse change in the business,
condition (financial or other) or results of operations of Unifrax or the
Subsidiaries taken as a whole (a "Material Adverse Change") or any
development which could reasonably be expected to result in a Material
Adverse Change, except as set forth in, or contemplated by, the
Prospectus.
(g) None of the issuance and sale of the Notes pursuant to this
Agreement, the Acquisitions, or any of the other transactions contemplated
by any of the Transaction Documents or the Prospectus shall be enjoined
(temporarily or permanently) and no restraining order or other injunctive
order shall have been issued or any action, suit or proceeding shall have
been commenced with respect to this Agreement, the Recapitalization
Agreement, the Acquisitions, or any of the other transactions contemplated
by the Prospectus, before any court or governmental authority.
(h) The Underwriters shall have received certificates, dated the
Closing Date, of the [appropriate officers] of UIC and Holding, as to such
person, to the effect that:
(A) The representations and warranties of such person in this
Agreement are true and correct in all material respects as if made
on and as of the Closing Date and such person has performed in all
material respects all covenants and agreements and satisfied in all
material respects all conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(B) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or the qualification
of the Indenture under the Trust Indenture Act has been issued, and
no proceedings for those purposes have been instituted or, to the
best of such person's knowledge, are threatened or contemplated by
the Commission;
(C) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has
not been any
<PAGE> 24
-24-
material adverse change in the business, condition (financial or
other) or results of operations of UIC, Holding, Unifrax or the
Subsidiaries taken as a whole except as set forth in or contemplated
by the Prospectus;
(D) Neither the sale of the Notes by UIC hereunder nor any of
the other transactions contemplated hereby, by the Transaction
Documents or by the Prospectus has been enjoined (temporarily or
permanently); and
(E) There have been no material amendments, alterations,
modifications, or waivers of any provisions of any of the
Transaction Documents since the date of the execution and delivery
thereof by the parties thereto (other than amendments, alterations,
modifications or waivers copies of which have previously been
distributed to the Underwriters); and
(F) UIC and Holdings, to the extent each is a party thereto,
have complied in all material respects with all agreements and
covenants in the Transaction Documents and performed in all material
respects all conditions specified therein contemplated by the
Prospectus to be complied with or performed by them at or prior to
the Closing Date.
(i) On the Closing Date, UIC and Holding shall have, to the extent
each is a party thereto, complied in all material respects with all
agreements and covenants in the Transaction Documents and performed all
conditions specified therein (other than agreements or covenants which
have been waived but only if such waivers are not required to be set forth
in the Prospectus) to be complied with or performed at or prior to the
Closing Date, and each of the Transaction Documents shall be in full force
and effect.
(j) On the Closing Date, the Underwriters shall have received copies
of all certificates, documents and opinions, reasonably requested by the
Underwriters, delivered by UIC and Holding or any of their counsels and
such other certificates, documents and opinions reasonably obtainable by
UIC and Holding under the Transaction Documents in connection with any of
the Transactions, together with letters addressed to the Underwriters,
stating that the
<PAGE> 25
-25-
Underwriters may rely on such certificates and opinions as if they had
been addressed to the Underwriters.
(k) Each of the Transactions (other than the Offering) shall have
been consummated, or shall be consummated simultaneously with the
Offering, on the terms and conditions set forth in the Transaction
Documents in the forms previously delivered to the Underwriters and to
which they shall not have reasonably objected.
(l) On the Closing Date, the Certificate of Merger with respect to
the Merger shall have been filed with the Secretary of State of the State
of Delaware.
(m) On the Closing Date, the Surviving Company shall have executed
and delivered to the Underwriters an agreement, in such form as is
satisfactory to the Underwriters, assuming the obligations of UIC under
this Agreement, the Indenture and the Notes.
On or before the Closing Date, the Underwriters shall have received
such further documents, opinions, certificates and schedules or instruments
relating to the business, corporate, legal and financial affairs of UIC and
Holding as they shall have heretofore reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Underwriters. UIC and Holding shall furnish to the Underwriters such conformed
copies of such opinions, certificates, letters, schedules, documents and
instruments in such quantities as the Underwriters shall reasonably request.
8. Indemnification and Contribution. (a) UIC agrees to indemnify and
hold harmless each Underwriter, and each person, if any, who controls either of
the Underwriters within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as any such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
<PAGE> 26
-26-
(i) any untrue statement or alleged untrue statement of any material
fact contained in (A) any registration statement originally filed with
respect to the Securities or any amendment thereto or any Preliminary
Prospectus or any Prospectus or any amendment or supplement thereto or (B)
any application or other document, or any amendment or supplement thereto,
executed by UIC or based upon written information furnished by or on
behalf of UIC filed in any jurisdiction in order to qualify the Securities
under the securities or "Blue Sky" laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application") or
(ii) the omission or alleged omission to state, in any registration
statement or any amendment thereto, any Preliminary Prospectus or any
Prospectus or any amendment or supplement thereto, or any Application, a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any reasonable and documented out-of-pocket legal or other expenses
reasonably incurred by the Underwriters or such controlling person in connection
with investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that UIC will not be liable in any such case to an Underwriter to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in any registration statement or any amendment thereto, any
Preliminary Prospectus or any Prospectus or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
furnished to UIC by or on behalf of any of such Underwriter specifically for use
therein; and provided, further, that UIC will not be liable to an Underwriter or
any person controlling such Underwriter with respect to any such untrue
statement or omission made in any Preliminary Prospectus that is corrected in
the Prospectus (or any amendment or supplement thereto) if the person asserting
any such loss, claim, damage or liability purchased Securities from such
Underwriter in reliance upon the Preliminary Prospectus or Prospectus but was
not sent or given a copy of the Prospectus (as amended or supplemented) at or
prior to the written confirmation of the sale of such Securities to such person
in any case where such
<PAGE> 27
-27-
delivery of such Prospectus or Prospectus (as so amended or supplemented) is
required by the Act, unless such failure to deliver such Prospectus (as amended
or supplemented) was a result of noncompliance by UIC with Section 5(e)(ii) of
this Agreement. This indemnity agreement will be in addition to any liability
that UIC may otherwise have to the indemnified parties. UIC will not, without
the prior written consent of the Underwriters, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification from the Underwriters may be
sought hereunder (whether or not the Underwriters or any person who controls
either of the Underwriters within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriters and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless UIC, its directors, officers who signed the Registration Statement
and each person, if any, who controls UIC within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which UIC or any such director, officer or controlling person may
become subject under the Act, the Exchange Act, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement or any amendment thereto,
any Preliminary Prospectus or any Prospectus or any amendment or supplement
thereto, or any Application or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in any Registration
Statement or any amendment thereto, any Preliminary Prospectus or any Prospectus
or any amendment or supplement thereto, or any Application, or necessary to make
the statements therein (in the case of any Preliminary Prospectus, any
Prospectus or any amendment or supplement thereto or any Application, in light
of the circumstances under which such statements were made) not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to UIC by or on behalf
of such Underwriter specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as
<PAGE> 28
-28-
incurred, any reasonable and documented out-of-pocket legal or other expenses
reasonably incurred by UIC or any such director, officer or controlling person
in connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action in respect thereof. This indemnity agreement will be in addition to
any liability that the Underwriters may otherwise have to the indemnified
parties. The Underwriters will not, without the prior written consent of UIC,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
from UIC may be sought hereunder (whether or not UIC or any person who controls
UIC within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of UIC and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8 except to the extent that such omission results in the forfeiture
by the indemnifying party of substantial rights and defenses. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or additional to
those available to any such indemnifying party such that representation of both
the indemnified parties and the indemnifying parties by the same counsel is
inappropriate then the indemnifying parties shall not have the right to direct
the defense of such action on behalf of such indemnified party or parties and
such indemnified party or parties shall have the right to select separate
counsel to defend such
<PAGE> 29
-29-
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable and documented out-of-pocket costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Underwriters in the case of
paragraph (a) of this Section 8 or UIC in the case of paragraph (b) of this
Section 8, representing the indemnified parties under such paragraph (a) or
paragraph (b), as the case may be, who are parties to such action or actions) or
(ii) the indemnifying party has authorized in writing the employment of counsel
for the indemnified party at the expense of the indemnifying parties. After such
notice from the indemnifying parties to such indemnified party (so long as the
indemnified party shall have informed the indemnifying parties of such action in
accordance with this Section 8 on a timely basis prior to the indemnified party
seeking indemnification hereunder), the indemnifying parties will not be liable
for the costs and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party, unless such
indemnified party waived its rights under this Section 8, in which case the
indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the
<PAGE> 30
-30-
indemnified party on the other from the offering of the Notes or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by UIC on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering of the Notes (before
deducting expenses other than underwriting discounts and commissions) received
by UIC bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by UIC on the one hand, or the Underwriters on
the other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. UIC and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if UIC
on the one hand and the Underwriters on the other hand were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to in the first sentence of
this paragraph (d). Notwithstanding any other provision of this paragraph (d),
the Underwriters shall not be obligated to make contributions hereunder that in
the aggregate exceed the total underwriting discounts and commissions received
by the Underwriters under this Agreement, less the aggregate amount of any
damages that the Underwriters have otherwise been required to pay by reason of
the untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact, and no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls either of the Underwriters within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
the Underwriters, and each director of UIC, each officer of UIC who signed the
Registration Statement and each person, if any, who controls UIC within the
meaning of Section 15 of the Act or Section 20
<PAGE> 31
-31-
of the Exchange Act, shall have the same rights to contribution as UIC.
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of UIC, its officers and
the Underwriters set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of UIC, any of its
officers or directors, the Underwriters or any controlling person referred to in
Section 8 hereof and (ii) delivery of and payment for the Notes, and shall be
binding upon and shall inure to the benefit of, any successors, assigns, heirs,
personal representatives of UIC, the Underwriters and indemnified parties
referred to in Section 8 hereof. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
10. Termination. (a) This Agreement may be terminated in the sole
discretion of the Underwriters by notice to UIC given in the event that UIC
shall have failed, refused or been unable to satisfy all conditions on its part
to be performed or satisfied hereunder on or prior to the Closing Date or, if at
or prior to the Closing Date:
(i) UIC, Holding or Unifrax shall have sustained any loss or
interference with respect to their respective businesses or properties
from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, which loss or interference has had or
has a material adverse effect on the business, condition (financial or
other) or results of operations of UIC, Holding or Unifrax and the
Subsidiaries taken as a whole, or there shall have been any material
adverse change, or any development involving a prospective material
adverse change (including without limitation a change in management or
control of UIC, Holding or Unifrax), in the business, condition (financial
or other), or results of operations of UIC, Holding or Unifrax and the
Subsidiaries taken as a whole, except as described in or contemplated by
the Prospectus (exclusive of any amendment or supplement thereto);
<PAGE> 32
-32-
(ii) trading in securities generally on the New York or American
Stock Exchange shall have been suspended or minimum or maximum prices
shall have been established on any such exchange;
(iii) a banking moratorium shall have been declared by
New York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (c) any material change in the financial
markets of the United States which, in the sole judgment of the
Underwriters, makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 10 shall
be without liability of any party to any other party except as provided in
Section 9 hereof.
11. Notices. All communications hereunder shall be in writing and,
if sent to the Underwriters, shall be mailed, delivered or telecopied and
confirmed in writing to the Underwriters c/o BT Securities Corporation, [One
Bankers Trust Plaza, New York, New York 10005,] Attention: ,
and with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York
10005, Attention: . If sent to UIC, Holding or Unifrax, shall
be mailed, delivered or telecopied confirmed in writing, to c/o Kirtland Capital
Partners II, L.P., 2550 SOM Center Road, Suite 105, Willoughby Hills, Ohio
44094, Attention: , and with a copy to Baker & Hostetler,
1900 East 9th Street, Suite 3200, Cleveland, Ohio, 44114, Attention:
, Esq.
12. Successors. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and UIC and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the
<PAGE> 33
-33-
indemnities of UIC contained in Section 8 of this Agreement shall also be for
the benefit of any person or persons who control the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of UIC, its officers who have signed
the Registration Statement and any person or persons who controls UIC within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser
of Notes from the Underwriters will be deemed a successor because of such
purchase.
13. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto with
respect to the subject matter hereof.
14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 34
S-1
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among UIC and the
Underwriters.
Very truly yours,
UNIFRAX INVESTMENT CORP.
By:___________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT SECURITIES CORPORATION
NATIONSBANC CAPITAL
MARKETS, INC.
By: BT SECURITIES CORPORATION
By:____________________________
Name:
Title:
<PAGE> 35
Exhibit A-1
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Senior Notes
- ----------- ---------------
<S> <C>
BT Securities Corporation
NationsBanc Capital
Market, Inc.
------------
$100,000,000
</TABLE>
<PAGE> 36
Exhibit B
Form of Opinion of Baker & Hostetler
1. UIC and Holding have been duly incorporated and are validly
existing and in good standing under the laws of its respective state of
incorporation with corporate power and authority to own or lease its properties
and to conduct its business as now conducted as described in each Prospectus.
2. UIC has and, after giving effect to the Merger, the Surviving
Company has, corporate power and authority to execute, deliver and perform its
respective obligations under the Underwriting Agreement, the Indenture, the
Notes and to issue the Notes to be issued by it pursuant to the Indenture.
3. To the best of our knowledge, there is no action, suit,
proceeding or investigation pending or threatened against or affecting any of
UIC, Holding, Kirtland, Unifrax, the Subsidiaries, any of their respective
subsidiaries or any of their respective properties or assets in any court or
before any governmental authority or arbitration board or tribunal that seeks to
restrain, enjoin, prevent the consummation of or otherwise challenge any of the
Transactions.
4. The Indenture has been duly authorized, executed and delivered by
UIC and (assuming due authorization, execution and delivery by the Trustee) is
the legally valid and binding agreement of UIC, enforceable against UIC in
accordance with its terms.
5. The Notes have been duly authorized by UIC for issuance and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms of
the Underwriting Agreement, will conform in all material respects to the
description thereof in the applicable Registration Statement and will be the
legally valid and binding obligations of UIC, enforceable against UIC in
accordance with their terms.
6. When executed by the Surviving Company in accordance with the
terms of the Indenture, the Notes and the Indenture, as amended by the
Supplemental Indenture (assuming due authorization, execution and delivery by
the applicable Trustee) will be the legally valid and binding obligations of the
Surviving Company enforceable against the Surviving Company in accordance with
their respective terms.
<PAGE> 37
-2-
7. The Underwriting Agreement has been duly authorized, executed and
delivered by UIC; the execution and delivery of the Underwriting Agreement, the
Indenture and the Notes by UIC, and the issuance and sale of the Notes pursuant
to the Underwriting Agreement will not result in the violation by UIC of its
certificate or articles of incorporation or bylaws or any federal or State of
New York statute, rule or regulation known to us to be applicable to UIC (other
than federal or state securities laws, which are specifically addressed
elsewhere herein) or in the breach of or a default by UIC under any of the
material agreements or court orders specifically identified to UIC, (which
material agreements have been identified to us by an officer of such person as
material to such person), which conflict, violation, breach or default
reasonably could be expected to have a material adverse effect on UIC.
8. To the best of our knowledge, no consent, approval, authorization
or order of, or filing with, any federal or State of New York court or
governmental agency or body is required for the issuance and sale of the Notes
by UIC pursuant to the Underwriting Agreement pursuant to the Indenture, except
(i) such as have been obtained or made under the Act or the Trust Indenture Act
or otherwise, and (ii) such as may be required under state securities laws in
connection with the purchase and distribution of the Notes by the Underwriters.
9. The Indenture has been duly qualified under the Trust Indenture
Act.
10. The Registration Statement has become effective under the Act
and, to the best of our knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued under the Act and no proceedings
therefor have been initiated by the Commission. Any required filing of the
Prospectus pursuant to Rule 424(b) under the Act has been made in accordance
with Rules 424(b) and 430A under the Act.
11. The Registration Statement and the Prospectus comply as to form
in all material respects with the applicable requirements for registration
statements on Form S-1 under the Act, the Trust Indenture Act and the rules and
regulations of the Commission thereunder; it being understood, however, that we
express no opinion with respect to the financial statements, schedules and other
financial and statistical data included in or omitted from the Registration
Statement or Prospectus or with respect to the Form T-1. In passing upon the
compliance as to form of the Registration Statement and the Prospectus, we
<PAGE> 38
-3-
have assumed that the statements made therein are correct and complete.
12. To our knowledge, there are no contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not described
or filed as required.
13. The Transaction Documents conform in all material respects to
the descriptions thereof in the Prospectus.
In addition, we have participated in conferences with officers and
other representatives of UIC, representatives of the independent public
accountants for UIC and Unifrax and your representatives, at which the contents
of the Registration Statement and the Prospectus and related matters were
discussed and, although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus and have not made any
independent check or verification thereof, during the course of such
participation (relying as to materiality to a large extent upon the statements
of officers and other representatives of UIC, no facts came to our attention
that caused us to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date or as
of the Closing Date, contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; it being
understood that we express no belief with respect to the financial statements,
schedules and other financial and statistical data included in or omitted from
the Registration Statement or the Prospectus or with respect to the Form T-1.
<PAGE> 1
Exhibit 4.1
UNIFRAX INVESTMENT CORP.,
as Issuer,
AND
PNC Bank, National Association
as Trustee
-----------------
INDENTURE
Dated as of October , 1996
----------------
$100,000,000
% Senior Notes due 2003
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310(a)(1) ..................................... 7.10
(a)(2) ..................................... 7.10
(a)(3) ..................................... N.A.
(a)(4) ..................................... N.A.
(a)(5) ..................................... 7.08; 7.10
(b) ........................................ 7.08; 7.10;
11.02
(c) ........................................ N.A.
311(a) ........................................ 7.11
(b) ........................................ 7.11
(c) ........................................ N.A.
312(a) ........................................ 2.05
(b) ........................................ 11.03
(c) ........................................ 11.03
313(a) ........................................ 7.06
(b)(1) ..................................... 7.06
(b)(2) ..................................... 7.06
(c) ........................................ 7.06; 11.02
(d) ........................................ 7.06
314(a) ........................................ 4.08; 4.10;
11.02
(b) ........................................ 10.02
(c)(1) ..................................... 7.02; 11.04;
11.05
(c)(2) ..................................... 7.02; 11.04;
11.05
(c)(3) ..................................... N.A.
(d) ........................................ 10.02
(e) ........................................ 11.05
(f) ........................................ N.A.
315(a) ........................................ 7.01(b); 7.02
(b) ........................................ 7.05; 12.02
(c) ........................................ 7.01
(d) ........................................ 6.05; 7.01(c);
7.02
(e) ........................................ 6.11
316(a)(last sentence) ......................... 2.09
(a)(1)(A) .................................. 6.05
(a)(1)(B) .................................. 6.04
(a)(2) ..................................... 9.02
(b) ........................................ 6.07
(c) ........................................ 9.04
317(a)(1) ..................................... 6.08
(a)(2) ..................................... 6.09
(b) ........................................ 2.04
318(a) ........................................ 11.01
(c) ........................................ 11.01
</TABLE>
- ----------
N.A. means Not Applicable
<PAGE> 3
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions...................................... 1
Section 1.02 Incorporation by Reference of TIA................ 23
Section 1.03 Rules of Construction............................ 24
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating.................................. 24
Section 2.02 Execution and Authentication..................... 25
Section 2.03 Registrar and Paying Agent....................... 26
Section 2.04 Paying Agent To Hold Assets in
Trust.......................................... 27
Section 2.05 Holder Lists..................................... 27
Section 2.06 Transfer and Exchange............................ 28
Section 2.07 Replacement Securities........................... 30
Section 2.08 Outstanding Securities........................... 30
Section 2.09 Treasury Securities.............................. 31
Section 2.10 Temporary Securities............................. 31
Section 2.11 Cancellation..................................... 31
Section 2.12 Defaulted Interest............................... 32
Section 2.13 CUSIP Number..................................... 32
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee............................... 32
Section 3.02 Selection of Securities To Be
Redeemed....................................... 33
Section 3.03 Notice of Redemption............................. 33
Section 3.04 Effect of Notice of Redemption................... 34
Section 3.05 Deposit of Redemption Price...................... 35
Section 3.06 Securities Redeemed in Part...................... 35
-i-
<PAGE> 5
Page
----
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities............................ 35
Section 4.02 Maintenance of Office or Agency.................. 36
Section 4.03 Limitation on Restricted Payments................ 36
Section 4.04 Limitation on Incurrence of
Additional Indebtedness........................ 38
Section 4.05 Corporate Existence.............................. 39
Section 4.06 Payment of Taxes and Other Claims................ 39
Section 4.07 Maintenance of Properties and
Insurance...................................... 40
Section 4.08 Compliance Certificate; Notice of
Default........................................ 40
Section 4.09 Compliance with Laws............................. 41
Section 4.10 Commission Reports............................... 42
Section 4.11 Waiver of Stay, Extension or Usury
Laws........................................... 42
Section 4.12 Limitation on Transactions with
Affiliates..................................... 42
Section 4.13 Intentionally Omitted ........................... 43
Section 4.14 Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries................................... 43
Section 4.15 Limitation on Liens.............................. 44
Section 4.16 Change of Control................................ 45
Section 4.17 Limitation on Asset Sales........................ 47
Section 4.18 Limitation on Preferred Stock of
Subsidiaries................................... 50
Section 4.19 Conduct of Business.............................. 51
Section 4.20 Intentionally Omitted............................ 51
Section 4.21 Additional Guarantees............................ 51
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 Mergers, Consolidations and Sale
of Assets...................................... 51
Section 5.02 Successor Corporation Substituted................ 53
-ii-
<PAGE> 6
Page
----
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default................................ 53
Section 6.02 Acceleration..................................... 55
Section 6.03 Other Remedies................................... 56
Section 6.04 Waiver of Past Defaults.......................... 57
Section 6.05 Control by Majority.............................. 57
Section 6.06 Limitation on Suits.............................. 57
Section 6.07 Rights of Holders To Receive
Payment........................................ 58
Section 6.08 Collection Suit by Trustee....................... 58
Section 6.09 Trustee May File Proofs of Claim................. 58
Section 6.10 Priorities....................................... 59
Section 6.11 Undertaking for Costs............................ 60
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee................................ 60
Section 7.02 Rights of Trustee................................ 62
Section 7.03 Individual Rights of Trustee..................... 62
Section 7.04 Trustee's Disclaimer............................. 63
Section 7.05 Notice of Default................................ 63
Section 7.06 Reports by Trustee to Holders.................... 63
Section 7.07 Compensation and Indemnity....................... 64
Section 7.08 Replacement of Trustee........................... 65
Section 7.09 Successor Trustee by Merger, Etc................. 66
Section 7.10 Eligibility; Disqualification.................... 66
Section 7.11 Preferential Collection of Claims
Against Company................................ 67
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Legal Defeasance and Covenant
Defeasance..................................... 67
Section 8.02 Satisfaction and Discharge....................... 71
Section 8.03 Survival of Certain Obligations.................. 72
Section 8.04 Acknowledgment of Discharge by
Trustee........................................ 72
Section 8.05 Application of Trust Assets...................... 72
-iii-
<PAGE> 7
Page
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Section 8.06 Repayment to the Company or the
Guarantors; Unclaimed Money.................... 73
Section 8.07 Reinstatement.................................... 73
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders....................... 74
Section 9.02 With Consent of Holders.......................... 74
Section 9.03 Compliance with TIA.............................. 76
Section 9.04 Revocation and Effect of Consents................ 76
Section 9.05 Notation on or Exchange of
Securities..................................... 77
Section 9.06 Trustee To Sign Amendments, Etc.................. 77
ARTICLE TEN
GUARANTEE
Section 10.01 Unconditional Guarantee.......................... 78
Section 10.02 Severability..................................... 79
Section 10.03 Limitation of Guarantor's
Liability...................................... 79
Section 10.04 Guarantors May Consolidate, etc.,
on Certain Terms............................... 80
Section 10.05 Contribution..................................... 80
Section 10.06 Waiver of Subrogation............................ 81
Section 10.07 Execution of Guarantee........................... 81
Section 10.08 Waiver of Stay, Extension or Usury
Laws........................................... 82
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01 TIA Controls..................................... 83
Section 11.02 Notices.......................................... 83
Section 11.03 Communications by Holders with
Other Holders................................. 84
Section 11.04 Certificate and Opinion as to
Conditions Precedent.......................... 85
Section 11.05 Statements Required in Certificate
or Opinion.................................... 85
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<PAGE> 8
Page
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Section 11.06 Rules by Trustee, Paying Agent,
Registrar...................................... 86
Section 11.07 Legal Holidays................................... 86
Section 11.08 Governing Law.................................... 86
Section 11.09 No Adverse Interpretation of Other
Agreements..................................... 86
Section 11.10 No Recourse Against Others....................... 86
Section 11.11 Successors....................................... 86
Section 11.12 Duplicate Originals.............................. 87
Section 11.13 Severability..................................... 87
Signatures......................................................... S-1
Exhibit A - Form of Security
Exhibit B - Form of Guarantee
Note: This Table of Contents shall not, for any purpose, be
deemed to be part of the Indenture.
-v-
<PAGE> 9
INDENTURE dated as of October , 1996 among UNIFRAX INVESTMENT
CORP., a Delaware corporation (the "Company"), as Issuer and PNC Bank, National
Association, a national banking association, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of %
Senior Notes due 2003 (the "Securities") and, to provide therefor, the Company
has duly authorized the execution and delivery of this Indenture. All things
necessary to make the Securities, when duly issued and executed by the Company
and authenticated and delivered hereunder, the valid and binding obligations of
the Company and to make this Indenture a valid and binding agreement of the
Company have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person merges or consolidates with the
Company or any of its Subsidiaries or assumed by the Company or a Subsidiary of
the Company in connection with the acquisition of assets from such Person and in
each case not incurred in connection with, or in anticipation or contemplation
of, such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other
Person who, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
<PAGE> 10
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"Affiliate Transaction" has the meaning set forth in
Section 4.12.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall be merged with or into the Company or any Subsidiary of the Company, or
(b) the acquisition by the Company or any Subsidiary of the Company of the
assets of any Person (other than a Subsidiary of the Company) which constitute
all or substantially all of the assets of such Person or comprise any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Subsidiary of the Company
of (a) any Capital Stock of any Subsidiary of the Company or (b) any other
property or assets of the Company or any Subsidiary of the Company other than in
the ordinary course of business; provided, however, that Asset Sales shall not
include (i) a transaction or series of related transactions for which the
Company or its Subsidiaries receive aggregate consideration of less than
$500,000, (ii) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under Section
5.01.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
or other equivalent governing body of such Person or any duly authorized
committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
<PAGE> 11
-3-
"BP" means the British Petroleum Company plc and any of its
Subsidiaries.
"BP Note" means the promissory note of the Company dated as of
October , 1996 in favor of BP Exploration (Alaska) Inc., a Delaware
corporation, in the original principal amount of $7,000,000.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in the City of New York or the
Commonwealth of Pennsylvania are required or authorized by law or other
governmental action to be closed.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP, and the amount of such
obligations at any date shall be the capitalized amount of such obligations at
such date, determined in accordance with GAAP.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (b) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Cash Equivalents" means (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank (including the Trustee)
organized under the laws of the United
<PAGE> 12
-4-
States of America or any state thereof or the District of Columbia or any United
States branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (e) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (a) above entered into with any bank meeting the
qualifications specified in clause (d) above; and (f) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (a) through (e) of this definition including funds
managed and advised by the Trustee or an affiliate of the Trustee and for which
the Trustee or an affiliate receives payment.
"Change of Control" means the occurrence of one or more of the
following events: (a) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company or Holding to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not
otherwise in compliance with the provisions of the Indenture) other than
Permitted Holder(s); (b) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (c) any Person or Group (other than the Permitted Holders(s)) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company or Holding; or (d) the
replacement of a majority of the Board of Directors of the Company or Holding
over a two-year period from the directors who constituted the Board of Directors
of the Company or Holding, as the case may be, at the beginning of such period,
and such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors of the Company or Holding, as the case may
be, then still in office who either were members of such Board of Directors at
the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Change of Control Date" has the meaning set forth in Section 4.16.
"Change of Control Offer" has the meaning set forth in Section 4.16.
<PAGE> 13
-5-
"Change of Control Payment Date" has the meaning set forth in
Section 4.16.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (a) Consolidated Net Income and (b) to the extent Consolidated
Net Income has been reduced thereby, (i) all income taxes of the Company and its
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (ii) Consolidated Interest Expense and (iii) Consolidated
Non-cash Charges, and (iv) expenses associated with voluntary health studies
undertaken by the Company to develop new types of industrial fibers with
physical and chemical properties to help reduce the potential risks associated
with ceramic fiber not to exceed $1,250,000 in any consecutive 12-month period,
less any non-cash items increasing Consolidated Net Income for such period,
all as determined on a consolidated basis for the Company and its Subsidiaries
in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to
the Company, the ratio of Consolidated EBITDA of the Company during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis, in accordance with Article 11 of Regulation S-X under the
Securities Act of 1933, as amended, for the period of such calculation to (a)
the incurrence or repayment of any Indebtedness of the Company or any of its
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or
<PAGE> 14
-6-
repayment of other Indebtedness (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and (b)
any Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Subsidiaries incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If the
Company or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if the Company or such Subsidiary,
as the case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (iii) notwithstanding clause (i) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
<PAGE> 15
-7-
"Consolidated Fixed Charges" means, with respect to the Company for
any period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Subsidiaries prior to the stated maturity
thereof pursuant to the agreements governing such Indebtedness), plus (b) the
product of (i) the amount of all dividend payments on any series of Preferred
Stock of the Company (other than dividends paid in Qualified Capital Stock)
paid, accrued or scheduled to be paid or accrued during such period times (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local income
tax rate of the Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company
for any period, the sum of, without duplication: (a) the aggregate of the
interest expense of the Company and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, including without limitation,
(i) any amortization of original issue discount, (ii) the net costs under
Interest Swap Obligations, (iii) all capitalized interest and (iv) the interest
portion of any deferred payment obligation; and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains, (c) the net income of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it is merged or consolidated with the Company or any Subsidiary of the
Company, (d) the net income (but not loss) of any Subsidiary of the Company to
the extent that the declaration of dividends or similar distributions by such
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Subsidiary of the
Company, except to the extent of cash dividends or distributions paid to the
Company or to a Subsidiary of the Company by such Person, (f) income or loss
attributable to discontinued operations (including, without limitation,
operations
<PAGE> 16
-8-
disposed of during such period whether or not such operations were classified as
discontinued), and (g) in the case of a successor to the Company by
consolidation or merger or as a transferee of the Company's assets, any net
income (or loss) of the successor corporation prior to such consolidation,
merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of the Company and its Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Credit Agreement" means the Credit Agreement dated as of October ,
1996, between the Company and Bank of America Illinois, as agent, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by Section 4.04) or adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.
<PAGE> 17
-9-
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" shall mean the Depository Trust Company, New York, New
York, or a successor thereto registered under the Exchange Act or other
applicable statute or regulation.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Securities.
"Equity Interests" means warrants, options or other stock purchase
rights to acquire the Capital Stock of the Company or Holding, as the case may
be (but excluding any debt security which is convertible into or exchangeable
for, Common Stock of the Company or Holding, as the case may be).
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Company
delivered to the Trustee.
"Final Maturity Date" means , 2003.
<PAGE> 18
-10-
"Foreign Subsidiaries" means XPE Vertriebs GmbH, a German
corporation and NAF Brasil Ltda., a Brazilian corporation.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"Global Security" shall mean a Security which is executed by the
Company and authenticated and delivered by the Trustee to the Depository or
pursuant to the Depository's instruction, all in accordance with this Indenture
and pursuant to a written order, which shall be registered in the name of the
Depository or its nominee and which, together with any other Global Security
representing Securities hereunder, shall represent, and shall be denominated in
an amount equal to the aggregate principal amount of, all of the outstanding
Securities.
"Guarantee" has the meaning set forth in Section 10.01.
"Guarantee Condition" shall have the meaning provided in Section
4.21.
"Guarantor" means each of the Company's Subsidiaries that in the
future executes a supplemental indenture in which such Subsidiary agrees to be
bound by the terms of this Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its Guarantee is released in accordance with the terms of this
Indenture.
"Holding" means Unifrax Holding Co., a Delaware corporation.
"incur" has the meaning set forth in Section 4.04.
"Indebtedness" means with respect to any Person, without
duplication, (a) all Obligations of such Person for borrowed money, (b) all
Obligations of such Person evidenced by
<PAGE> 19
-11-
bonds, debentures, notes or other similar instruments, (c) all Capitalized Lease
Obligations of such Person, (d) all Obligations of such Person issued or assumed
as the deferred purchase price of property, all conditional sale obligations and
all Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary course of
business), (e) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (f)
Guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (a) through (e) above and clause (h) below, (g) all Obligations of
any other Person of the type referred to in clauses (a) through (f) above which
are secured by any Lien on any property or asset of such Person, the amount of
such Obligation being deemed to be the lesser of the fair market value of such
property or asset or the amount of the Obligation so secured, (h) all
Obligations under currency agreements and interest swap agreements of such
Person and (i) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (a) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Securities.
<PAGE> 20
-12-
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of the Company or such Subsidiary, as the case may
be, or of the industry. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Capital Stock of any Subsidiary of the Company such
that, after giving effect to any such sale or disposition, it ceases to be a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Capital Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Securities
under this Indenture.
"Legal Defeasance" has the meaning set forth in
Section 8.01.
"Lien" means with respect to any property or assets of any person,
any lien, mortgage or deed of trust, pledge, hypothecation, assignment, security
interest, lien, charge, easement, encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement, any lease in the nature
thereof (but excluding operating leases as defined by GAAP) and any
<PAGE> 21
-13-
agreement having substantially the same economic effect as any of the
foregoing).
"Management Agreement" means the agreement by and between the
Company and Kirtland Capital Corporation, as such Management Agreement may be
amended.
"Merger" means the merger of the Company with and into Unifrax
pursuant to the Recapitalization Agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale (d) appropriate
amounts to be provided by the Company or any Subsidiary of the Company, as the
case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary of
the Company, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale and (e) with respect to any proceeds
received by any Subsidiary of the Company, any dividend or distribution payable
to holders of minority interests in such Subsidiary from the proceeds of such
Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.17.
"Net Proceeds Offer Amount" has the meaning set forth in Section
4.17.
"Net Proceeds Offer Payment Date" has the meaning set forth in
Section 4.17.
<PAGE> 22
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"Net Proceeds Offer Trigger Date" has the meaning set forth in
Section 4.17.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by
two Officers of the Company.
"Opinion of Counsel" means a written opinion from legal counsel
which opinion and counsel are reasonably acceptable to the Trustee.
"Paying Agent" has the meaning set forth in Section 2.03.
"Permitted Holders" means Kirtland Capital Partners II, L.P. and
Kirtland Capital Corporation, an Ohio corporation and their Affiliates and any
shareholder or partner thereof.
"Permitted Indebtedness" means, without duplication, each of the
following:
(a) Indebtedness under the Securities and this Indenture;
(b) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed (A)
$25,000,000 with respect to the Indebtedness under the term loan facility
as reduced by the aggregate principal amount permanently repaid with the
proceeds of Asset Sales and (B) the greater of $20,000,000 or the amount
available for borrowings with respect to Indebtedness under the revolving
credit facility pursuant to the borrowing base of the Credit Agreement as
reduced by the aggregate principal amount permanently repaid with the
proceeds of Asset Sales less the amount of Indebtedness then outstanding
pursuant to clause (o) hereof;
<PAGE> 23
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(c) Indebtedness outstanding on the Issue Date;
(d) Interest Swap Obligations of the Company or a Guarantor covering
Indebtedness of the Company or any of its Subsidiaries and Interest Swap
Obligations of any Subsidiary of the Company covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness permitted under the Indenture to the
extent the notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(e) Indebtedness of a Subsidiary of the Company to the Company or to
another Subsidiary of the Company for so long as such Indebtedness is held
by the Company or such Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Subsidiary of the Company; provided
that if as of any date any Person other than the Company or such
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness under this clause (e)
by the issuer of such Indebtedness;
(f) Indebtedness of the Company to a Subsidiary of the Company for
so long as such Indebtedness is held by such Subsidiary, in each case
subject to no Lien; provided that (i) any Indebtedness of the Company to
any Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under this Indenture and
the Securities and (ii) if as of any date any Person other than a
Subsidiary of the Company owns or holds any such Indebtedness or holds a
Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness under
this clause (f) by the Company;
(g) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two business days of
incurrence;
<PAGE> 24
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(h) Indebtedness of the Company or any of its Subsidiaries
represented by letters of credit for the account of the Company or such
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(i) Refinancing Indebtedness;
(j) Indebtedness under Currency Agreements; provided that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(k) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Subsidiaries in an aggregate principal amount
not to exceed $2,000,000 at any one time outstanding;
(l) additional Indebtedness of the Company in an
aggregate principal amount not to exceed $5,000,000 at any
one time outstanding;
(m) Indebtedness arising from guarantees of loans and advances by
third parties to employees and officers of the Company or its Subsidiaries
in the ordinary course of business for bona fide business purposes,
provided that the aggregate amount of such guarantees when added to the
amount then outstanding pursuant to clause (d) of the definition of
"Permitted Investments" does not exceed $250,000;
(n) Indebtedness arising from the repurchase of Common Stock or
Equity Interests if otherwise permitted under Section 4.03;
(o) Indebtedness incurred by a Foreign Subsidiary in the ordinary
course of business in the aggregate not to exceed $5,000,000 at any one
time outstanding; and
(p) Guarantees incurred pursuant to the Credit Agreement or clause
(o) above.
<PAGE> 25
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"Permitted Investments" means (a) Investments by the Company or any
Subsidiary of the Company in any Person that is or will be immediately after
such Investment a Wholly Owned Subsidiary of the Company or that will merge or
consolidate into the Company or a Wholly Owned Subsidiary of the Company, (b)
Investments in the Company by any Subsidiary of the Company; provided that any
Indebtedness evidencing any such Investment held by a Subsidiary of the Company
is unsecured and subordinated, pursuant to a written agreement, to the Company's
obligations under the Securities and this Indenture; (c) investments in cash and
Cash Equivalents; (d) loans and advances to employees and officers of the
Company or any of the Subsidiaries of the Company in the ordinary course of
business for bona fide business purposes provided that the aggregate amount of
such loans and advances when added to the amount outstanding pursuant to clause
(l) of the definition of "Permitted Indebtedness" does exceed $250,000 at any
one time outstanding; (e) Interest Swap Obligations and Currency Agreements
entered into in the ordinary course of the Company's or its Subsidiaries'
businesses and otherwise in compliance with the Indenture; (f) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (g) Investments made by the Company or its
Subsidiaries as a result of consideration received in connection with an Asset
Sale made in compliance with Section 4.17 and (h) Investments by the Company or
any Subsidiary of the Company in Persons other than Wholly Owned Subsidiaries
not to exceed $2,000,000 at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or a Subsidiary of the Company, as
the case may be, shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
<PAGE> 26
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(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing Purchase Money Indebtedness of the Company or any
Subsidiary of the Company; provided, however, that (i) the Purchase Money
Indebtedness shall not be secured by any property or assets of the Company
or any Subsidiary of the Company other than the property and assets so
acquired and (ii) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Subsidiaries, including rights of offset and
set-off;
<PAGE> 27
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(j) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(k) Liens securing Indebtedness incurred under the Credit Agreement
or pursuant to clause (l) or (o) of the definition of Permitted
Indebtedness; and
(l) Liens securing Acquired Indebtedness incurred in accordance with
Section 4.04; provided that (i) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Subsidiary of the Company and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company and
(ii) such Liens do not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Subsidiary of the Company
and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Subsidiary of the Company.
"Person" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of Holding or the Company pursuant to a registration
statement filed with and declared effective by the Commission in accordance with
the Securities Act; provided that, in the event of a Public Equity Offering by
Holding, Holding contributes to the capital of the Company the portion of the
net cash proceeds of such Public Equity Offering necessary to pay the aggregate
Redemption Price, plus accrued and unpaid interest, if any, to the Redemption
Date of the
<PAGE> 28
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Securities to be redeemed pursuant to paragraph 6 of the Securities.
"pro forma" means, with respect to any calculation made or required
to be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
"Purchase Money Indebtedness" means Indebtedness of the Company and
its Subsidiaries incurred in connection with the purchase of property or assets
for the business of the Company and its Subsidiaries and any Refinancing
thereof.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Recapitalization Agreement" means the Recapitalization Agreement
effective as of June 9, 1996 among the Company, Holding, Unifrax and BP.
"Record Date" means the applicable Record Date specified in the
Securities; provided that if any such date is not a Business Day, the Record
Date shall be the first day immediately preceding such specified day that is a
Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"Reference Date" has the meaning set forth in Section 4.03.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
<PAGE> 29
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"Refinancing Indebtedness" means any Refinancing by the Company or
any Subsidiary of the Company of Indebtedness incurred in accordance with
Section 4.04 (other than pursuant to clause (b), (d), (e), (f), (g), (h), (j),
(k), (l) or (o) of the definition of Permitted Indebtedness), in each case that
does not (i) result in an increase in the aggregate principal amount of
Indebtedness of the Company as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company and its Subsidiaries in connection with such Refinancing) or (ii)
create Indebtedness with (x) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (y) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (1) if such Indebtedness being Refinanced is
Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and (2) if such Indebtedness being Refinanced
is subordinate or junior to the Securities, then such Refinancing Indebtedness
shall be subordinate to the Securities at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning set forth in Section 2.03.
"Regulation S" means Regulation S under the Securities Act.
"Replacement Assets" has the meaning set forth in Section 4.17.
"Responsible Officer" means, when used with respect to the Trustee,
any officer in the Corporate Trust Office of the Trustee including any vice
president, assistant vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Restricted Payment" has the meaning set forth in Section 4.03.
<PAGE> 30
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"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Subsidiary of the Company of any property,
whether owned by the Company or any Subsidiary of the Company at the Issue Date
or later acquired, which has been or is to be sold or transferred by the Company
or such Subsidiary to such Person or to any other Person from whom funds have
been or are to be advanced by such Person on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute or statutes thereto.
"Securityholder" or "Holder" means the Person whose name a Security
is registered on the Registrar's books.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(v) of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (a) any corporation
of which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.01.
"Tax Sharing Agreement" means the agreement between the Company and
Holding as such Tax Sharing Agreement is in effect on the Issue Date and as the
same may be amended pursuant to any amendment, alteration, modification or
waiver thereto that is not materially adverse to the interests of the Company or
the Holders.
"TIA" means the Trust Indenture act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA, except as otherwise provided in Section 9.03.
<PAGE> 31
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"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unifrax" means Unifrax Corporation, a Delaware corporation.
"U.S. Government Obligations" shall have the meaning set forth in
Section 8.01.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than in the case of
a foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
<PAGE> 32
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"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, any
Guarantor or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities, the notation thereon relating to the Guarantees (if
and when delivered) and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company and the Trustee shall approve the form of the Securities and any
notation, legend or endorsement on them. Each
<PAGE> 33
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Security shall be dated the date of its issuance and show the date of its
authentication.
The terms and provisions contained in the Securities and the
Guarantees (if and when delivered) shall constitute, and are hereby expressly
made, a part of this Indenture and, to the extent applicable, the Company and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature. If a Guarantee Condition shall exist pursuant to Section 4.21, each
Guarantor shall execute the Guarantee in the manner set forth in Section 10.07.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of $100,000,000 upon a written order of the Company
in the form of an Officers' Certificate. The Officers' Certificate shall specify
the amount of Securities to be authenticated and the date on which the
Securities are to be authenticated. Such Securities shall be in the form of one
or more Global Securities, which (i) shall represent, and shall be denominated
in an amount equal to the aggregate principal amount of, the outstanding
Securities, (ii) shall be registered in the name of the Depository for such
Global Security or Securities or its nominee, (iii) shall be delivered by the
Trustee to the Depository or pursuant to the Depository's instruction and (iv)
shall bear a legend substantially to the following effect: "Unless and until
this Global Security is exchanged in whole or in part for
<PAGE> 34
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the individual Securities represented hereby, this Global Security 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 by a Depository or any
such nominee to a successor Depository or a nominee of a successor Depository."
The aggregate principal amount of Securities outstanding at any time may not
exceed $100,000,000 (or such lesser amount as is requested authenticated by the
Trustee and issued by the Company on the Issue Date), except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. The
Company may act as its own Registrar or Paying Agent except that for the
purposes of Articles Three and Eight and Sections 4.16 and 4.17, neither the
Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents
<PAGE> 35
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reasonably acceptable to the Trustee. The term "Paying Agent" includes any
additional paying agent. The Company initially appoints the Trustee as Registrar
and Paying Agent until such time as the Trustee has resigned or a successor has
been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that, subject to Article Four and Article Twelve, each
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
assets held by the Paying Agent for the payment of principal of, or interest on,
the Securities (whether such assets have been distributed to it by the Company
or any other obligor on the Securities), and shall notify the Trustee of any
Default by the Company (or any other obligor on the Securities) in making any
such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names
<PAGE> 36
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and addresses of Holders, which list may be conclusively relied upon by the
Trustee.
SECTION 2.06. Transfer and Exchange.
(a) When Securities are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Securities or to exchange such
Securities for an equal principal amount of Securities of other authorized
denominations, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
request. No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchanges or transfers pursuant to Sections 2.02, 2.10, 3.06, 4.16, 4.17 or
9.05). The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing, (ii)
selected for redemption in whole or in part pursuant to Article Three, except
the unredeemed portion of any Security being redeemed in part, and (iii) during
a Change of Control Offer or an Net Proceeds Offer if such Security is tendered
pursuant to such Change of Control Offer or Net Proceeds Offer and not
withdrawn. A Global Security may be transferred, in whole but not in part, in
the manner provided in this Section 2.06(a), only to a nominee of the Depository
for such Global Security, or to the Depository, or a successor Depository for
such Global Security selected or approved by the Company, or to a nominee of
such successor Depository.
(b) If at any time the Depository for the Global Security or
Securities notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security or Securities or the Company becomes aware
that the
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Depository has ceased to be a clearing agency registered under the Exchange Act,
the Company shall appoint a successor Depository with respect to such Global
Security or Securities. If a successor Depository for such Global Security or
Securities has not been appointed within 120 days after the Company receives
such notice or becomes aware of such ineligibility, the Company shall execute,
and the Trustee, upon receipt of an Officers' Certificate for the authentication
and delivery of Securities, shall authenticate and deliver, Securities in
definitive form, in an aggregate principal amount at maturity equal to the
principal amount at maturity of the Global Security representing such
Securities, in exchange for such Global Security. The Company shall reimburse
the Registrar, the Depository and the Trustee for expenses they incur in
documenting such exchanges and issuances of Securities in definitive form.
The Company may at any time and in its sole discretion determine
that the Securities shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the Trustee, upon
receipt of a written order for the authentication and delivery of individual
Securities in exchange in whole or in part for such Global Security or
Securities, will authenticate and deliver individual Securities in definitive
form in an aggregate principal amount equal to the principal amount of such
Global Security or Securities in exchange for such Global Security or
Securities.
In any exchange provided for in any of the preceding two paragraphs,
the Company will execute and the Trustee will authenticate and deliver
individual Securities in definitive registered form in authorized denominations.
Upon the exchange of a Global Security for individual Securities, such Global
Security shall be cancelled by the Trustee. Securities issued in exchange for a
Global Security pursuant to this Section 2.06(b) shall be registered in such
names and in such authorized denominations as the Depository for such Global
Security, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities
to the persons in whose names such Securities are so registered.
None of the Company, the Trustee, any Paying Agent or the 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
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security pursuant to this
Section 2.07, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Company, the Guarantors or
any of their respective Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07. If the principal amount of any Security is considered paid under Section
4.01, it ceases to be outstanding and interest ceases to accrue.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government
obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
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SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Subsidiaries or any of their respective Affiliates
shall be disregarded, except that, for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities that the Trustee knows or has reason to know are so owned shall
be disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities. Notwithstanding the foregoing,
so long as the Securities are represented by a Global Security, such Global
Security may be in typewritten form.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary), and no one else, shall cancel and, at
the written direction of the Company, shall dispose of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.07, the Company may not issue new Securities to replace Securities that it has
paid or delivered to the Trustee for cancellation. If the Company or any
Guarantor shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation pursuant to this Section 2.11.
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SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities,
it shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, the Company shall mail to each Holder, with a
copy to the Trustee, a notice that states the subsequent special record date,
the payment date and the amount of defaulted interest, and interest payable on
such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that any such notice
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5
or Paragraph 6 of the Securities, it shall notify the Trustee in writing of the
Redemption Date, the Redemption Price and the principal amount of Securities to
be redeemed. The Company shall give notice of redemption to the Paying Agent and
Trustee at least 30 days but not more than 60 days before the Redemption Date
(unless a shorter notice shall be agreed to by the Trustee in writing), together
with an Officers' Certificate stating that such redemption will comply with the
conditions contained herein.
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SECTION 3.02. Selection of Securities To Be Redeemed.
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Securities of a principal amount of $1,000 or less shall be
redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to the
procedures of the Depository), unless such method is otherwise prohibited.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 or less may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at its registered
address. At the Company's request made at least 45 days before the Redemption
Date, the Trustee shall give the notice of redemption in the Company's name and
at the Company's expense. Each notice for redemption shall identify the
Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued
interest, if any, to be paid;
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(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest, if
any;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the Securities
are to be redeemed.
The notice, if mailed in a manner herein provided, shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption in whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Securities called for redemption shall be paid at
the Redemption Price (which shall include accrued
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interest thereon to the Redemption Date), but installments of interest, the
maturity of which is on or prior to the Redemption Date, shall be payable to
Holders of record at the close of business on the relevant Record Dates.
SECTION 3.05. Deposit of Redemption Price.
On or before 12:00 noon New York Time on the Redemption Date, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the Securities to be redeemed will cease to accrue
on and after the applicable Redemption Date, whether or not such Securities are
presented for payment.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part only,
the Trustee shall upon written instruction from the Company authenticate for the
Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company will pay the principal of and interest on the Securities
in the manner provided in the Securities. An installment of principal of or
interest on the Securities shall be considered paid on the date it is due if the
Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and
sufficient to pay the installment.
The Company will pay, to the extent such payments are lawful,
interest on overdue principal and it shall pay interest on overdue installments
of interest (without regard to any applicable grace periods) from time to time
on demand at the
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rate borne by the Securities plus 2% per annum. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. 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 address of the Trustee set forth in Section 11.02.
SECTION 4.03. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable in Qualified
Capital Stock of the Company) on or in respect of shares of the Company's
Capital Stock to holders of such Capital Stock, (b) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company or
Holding or any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company that is subordinate or junior in
right of payment to the Securities or (d) make any Investment (other than a
Permitted Investment) (each of the foregoing actions set forth in clauses (a),
(b) (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with paragraph (a) of Section 4.04 or
(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended for
such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of Directors of
the Company) shall exceed the sum of: (w) 50% of the cumulative
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Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company earned subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period); plus (x) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company; plus (y) without duplication of any amounts included in clause
(iii)(x) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph shall not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration of such dividend if the
dividend would have been permitted on the date of declaration; (2) the
acquisition of any shares of Capital Stock of the Company, either (A) solely in
exchange for shares of Qualified Capital Stock of the Company or (B) if no
Default or Event of Default shall have occurred and be continuing, through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Securities, either (A) solely
in exchange for shares of Qualified Capital Stock of the Company, or (B) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (I) shares of Qualified Capital
Stock of the Company or (II) Refinancing Indebtedness; (4) the making of
payments by the Company to Holding pursuant to and in accordance with the Tax
Sharing Agreement; (5) the making of payments by the Company to Holding to pay
operating expenses, not to exceed $500,000 in any fiscal year; (6) payments by
the Company to redeem or repurchase or to enable Holding to redeem or repurchase
Capital Stock of Holding or the Company, as the case may be, or Equity Interests
issued to or on behalf of directors, officers and employees of the Company or
any of its Subsidiaries pursuant to Company policy with respect to employees of
the Company or its Subsidiaries who have died or become disabled or whose
employment has been terminated or pursuant to the terms of employment contracts,
other agreements or employee benefit plans of Holding, the Company or any of its
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Subsidiaries not to exceed $300,000 in any fiscal year; provided, however, that
if such amount is not used in its entirety within such fiscal year, the
unutilized amount may be utilized solely in the next succeeding fiscal year; and
(7) payments for the redemption, repurchase or other acquisition of shares of
Capital Stock of the Company in satisfaction of indemnification or similar
claims arising under any merger, consolidation, asset purchase or investment or
similar acquisition agreement, permitted under the Indenture, pursuant to which
such shares of Capital Stock were issued. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with clause
(iii) of the immediately preceding paragraph, amounts expended pursuant to
clauses (1), (2)(B), (6) and (7) shall be included in such calculation.
Not later than the date of making any Restricted Payment (as defined
in the first paragraph of this covenant), the Company shall deliver to the
Trustee an officers' certificate stating that such Restricted Payment complies
with the Indenture and setting forth in reasonable detail the basis upon which
the required calculations were computed, which calculations may be based upon
the Company's latest available internal quarterly financial statements.
SECTION 4.04. Limitation on Incurrence of
Additional Indebtedness.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and any
Subsidiary may incur Acquired Indebtedness, in each case, if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof
(including a pro forma application of the net proceeds of such Indebtedness),
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than (a)
2.00 to 1.0, if the date of such incurrence is on or prior to [ ], 1999,
or (b) 2.25 to 1.0, if the date of such incurrence is after [ ], 1999.
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(b) Indebtedness of a Person which is secured by a Lien on an asset
acquired by the Company or a Subsidiary of the Company (whether or not such
Indebtedness is assumed by the acquiring Person) shall be deemed incurred at the
time of the Asset Acquisition.
(c) The Company will not incur any Indebtedness which by its terms
(or by the terms of any agreement governing such Indebtedness) is subordinated
in right of payment to any other Indebtedness of the Company unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate in right of payment to the
Securities pursuant to subordination provisions that are substantively identical
to the subordination provisions of such Indebtedness (or such agreement) that
are most favorable to the holders of any other Indebtedness of the Company.
SECTION 4.05. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Subsidiaries in accordance with the respective organizational
documents of each such Subsidiary and the rights (charter and statutory) and
material franchises of the Company and each of its Subsidiaries; provided,
however, that the Company and its Subsidiaries shall not be required to preserve
any such right or franchise, or the corporate, partnership or other existence of
any such Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and each of its Subsidiaries, taken as a whole, and that
the loss thereof is not, and will not be, adverse in any material respect to the
Holders.
SECTION 4.06. 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, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or any of its Subsidiaries or
upon the income, profits or property of it or any of its Subsidiaries and (b)
all lawful claims for labor, materials and supplies which, in each case, if
unpaid, might by law become a material liability or Lien upon the property of it
or any of its
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Subsidiaries; 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 appropriate provision has been
made.
SECTION 4.07. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or
leased by it or any of its Subsidiaries used or useful to the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept in
normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all repairs, renewals, replacements, and
betterments thereof, all as in its judgment may be necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 4.07
shall prevent the Company or any of its Subsidiaries from discontinuing the use,
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Board of Directors
of the Company or any such Subsidiary concerned, or of an officer (or other
agent employed by the Company or any of its Subsidiaries) of the Company or any
of its Subsidiaries having managerial responsibility for any such property,
desirable in the conduct of the business of the Company or any such Subsidiary,
and if such discontinuance or disposal is not adverse in any material respect to
the Holders.
(b) The Company shall maintain, and shall cause its Subsidiaries to
maintain, insurance with responsible carriers against such risks and in such
amounts, and with such deductibles, retentions, self-insured amounts and
co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance.
SECTION 4.08. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 100 days after
the close of each fiscal year an Officers' Certificate stating that a review of
the activities of the Company has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and
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further stating, as to each such Officer signing such certificate, that to the
best of his knowledge the Company during such preceding fiscal year has kept,
observed, performed and fulfilled each and every such covenant and no Default or
Event of Default occurred during such year and at the date of such certificate
there is no Default or Event of Default that has occurred and is continuing or,
if such signers do know of such Default or Event of Default, the certificate
shall describe its status with particularity. The Officers' Certificate shall
also notify the Trustee should the Company elect to change the manner in which
it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to Section
4.10 shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit of such financial statements nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four, Five or Six of this Indenture insofar as they relate
to accounting matters or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall deliver to the Trustee, forthwith upon
becoming aware of any Default or Event of Default in the performance of any
covenant, agreement or condition contained in this Indenture, an Officers'
Certificate specifying the Default or Event of Default and describing its status
with particularity.
SECTION 4.09. Compliance with Laws.
The Company will comply, and will cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States, all states and municipalities thereof, and of
any governmental department, commission, board, regulatory authority, bureau,
agency and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not in the aggregate have a material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries taken as a whole.
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SECTION 4.10. Commission Reports.
The Company will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
reports and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and the
Holders with such quarterly and annual reports and other reports specified in
Section 13 and 15(d) of the Exchange Act. The Company will also comply with the
other provisions of TIA Section 314(a).
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture, and (to the
extent that it may lawfully do so) the Company hereby expressly waives 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.
SECTION 4.12. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of their respective Affiliates (each
an "Affiliate Transaction"), other than (i) Affiliate Transactions permitted
under paragraph (b) of this covenant and (ii) Affiliate Transactions on terms
that are no less favorable to the Company or the applicable Subsidiary of the
Company than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person
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that is not an Affiliate of the Company or such Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1,000,000 shall be approved by the Board
of Directors of the Company, such approval to be evidenced by a Board Resolution
stating that such Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, the Company shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Subsidiary of the
Company, as the case may be, from a financial point of view, from an Independent
Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary
of the Company as determined in good faith by the Company's Board of Directors;
(ii) transactions exclusively between or among the Company and any of its
Subsidiaries or exclusively between or among such Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) Restricted
Payments permitted by the Indenture; (iv) payments made pursuant to the
Management Agreement; (v) payments made pursuant to and in accordance with the
BP Note and (vi) any agreement as in effect on the Issue Date.
SECTION 4.13. INTENTIONALLY OMITTED
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Subsidiary of
the Company; or (c) transfer any of its property or assets to the Company or any
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other Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (i) applicable law; (ii) this Indenture; (iii)
the Credit Agreement; (iv) customary non-assignment provisions of any contract
or any lease governing a leasehold interest of any Subsidiary of the Company;
(v) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired; (vi) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (vii) Purchase Money
Indebtedness for property or assets acquired that impose restrictions only on
the property or assets so acquired; or (viii) an agreement governing Refinancing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (ii), (iii), (v), (vi) or (vii)
above; provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are no less favorable
to the Holders in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in the applicable
agreement referred to in such clause (ii), (iii), (v), (vi) or (vii).
SECTION 4.15. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any of its Subsidiaries, whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless (a) in the case
of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Securities, the Securities are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (b) in
all other cases, the Securities are equally and ratably secured, except for (i)
Liens existing as of the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date; (ii) Liens securing the Securities; (iii) Liens
of the Company or a Subsidiary of the Company on assets of any Subsidiary; (iv)
Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the
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Indenture and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens (x) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (y) do not
extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so Refinanced; and (v) Permitted
Liens.
SECTION 4.16. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase (the "Change of Control Offer"), and
shall purchase, on a Business Day (the "Change of Control Payment Date") as
described below, all of the then outstanding Securities at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the Change of Control Payment Date. The Change of Control
Offer shall remain open for at least 20 Business Days and until the close of
business on the Change of Control Payment Date.
(b) Within 30 days following the date upon which a Change of Control
occurs (the "Change of Control Date"), the Company shall send, by first class
mail, a notice to each Holder, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. The notice to the Holders shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Change of Control Offer. Such notice shall
state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.16 and that all Securities tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued interest)
and the Change of Control Payment Date, which shall be a Business Day,
that is not earlier than 30 days or later than 60 days from the date such
notice is mailed;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant
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to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Change of Control Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price plus accrued interest, if any, and the Trustee shall promptly authenticate
and mail to such Holders new Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.16, the Trustee shall act as the Paying Agent.
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Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities pursuant to a Change of Control Offer. To the extent the
provisions of any securities laws or regulations conflict with the provisions
under this Section 4.16, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under this Section 4.16 by virtue thereof.
SECTION 4.17. Limitation on Asset Sales.
The Company will not, and will not permit any of its Subsidiaries
to, consummate an Asset Sale unless (a) the Company or the applicable Subsidiary
of the Company, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Company's Board of
Directors), (b) at least 90% of the consideration received by the Company or the
Subsidiary of the Company, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents and is received at the time of such
disposition; and (c) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 270 days of receipt thereof either (i) to the extent the
properties or assets that were the subject to such Asset Sale constitute
collateral under the Credit Agreement, to prepay any Indebtedness under the
Credit Agreement and effect a permanent reduction in the availability under the
Credit Agreement, (ii) to make an investment in properties or assets that
replace the properties or assets that were the subject of such Asset Sale or in
properties or assets that will be used in the business of the Company and its
Subsidiaries as existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets"), or (iii) a combination of prepayment and
investment permitted by the foregoing clauses (c)(i) and (c)(ii). On the 271st
day after an Asset Sale or such earlier date, if any, as the Board of Directors
of the Company determines not to apply the Net Cash Proceeds relating to such
Asset Sale as set forth in clauses (c)(i), (c)(ii) and (c)(iii) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
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aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (c)(i), (c)(ii) and
(c)(iii) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Subsidiary, as the case may be, to make
an offer to purchase (a "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 days nor more than 45 days following the
applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis, that principal amount of Securities equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the Securities to be
purchased, plus accrued and unpaid interest, if any, thereon to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.17. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5,000,000 resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not just the
amount in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under Section 5.01, the successor corporation
shall be deemed to have sold the properties and assets of the Company and its
Subsidiaries not so transferred for purposes of Section 4.17, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Subsidiaries deemed to be sold shall be deemed to
be Net Cash Proceeds for purposes of Section 4.17.
Notwithstanding the two immediately preceding paragraphs, the
Company and its Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (a) at least 90% of the
consideration for such Asset Sale constitutes Replacement Assets and (b) such
Asset Sale is for fair market value; provided that any consideration
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not constituting Replacement Assets received by the Company or any of its
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer pursuant to this Section 4.17
shall be mailed or caused to be mailed, by first class mail, by the Company
within 25 days following the applicable Net Proceeds Offer Trigger Date to all
Holders at their last registered addresses, with a copy to the Trustee. A Net
Proceeds Offer shall remain open for a period of 20 Business Days or such longer
period as may be required by law. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer and shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.13 and that all Securities tendered will be accepted for
payment; provided, however, that if the principal amount of Securities
tendered in the Net Proceeds Offer exceeds the aggregate amount of Net
Proceeds Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis;
(2) the purchase price (including the amount of accrued interest, if
any) and the purchase date (which shall be no earlier than 30 days nor
later than 45 days from the date such notice is mailed, other than as may
be required by applicable law);
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
the Net Proceeds Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Net Proceeds Offer
Payment Date;
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(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to
the Net Proceeds Offer Payment Date, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part will
be issued new Securities in a principal amount at maturity equal to the
unpurchased portion of the Securities surrendered.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price, plus accrued interest, if any, of all
Securities to be purchased and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to the Holders of Securities so accepted payment in an amount equal to the
purchase price, plus accrued interest, if any, thereon. Any Security not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.17, the Trustee shall act as the Paying Agent. Any
amounts remaining after the purchase of Securities pursuant to a Net Proceeds
Offer shall be returned by the Trustee to the Company.
The Company shall comply with all tender offer rules under state and
federal securities laws, including, but not limited to, Section 14(e) under the
Exchange Act and Rule l4e-1 thereunder, to the extent applicable to such offer.
To the extent that the provisions of any securities laws or regulations conflict
with the foregoing provisions of this Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the foregoing provisions of this Indenture by
virtue thereof.
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SECTION 4.18. Limitation on Preferred
Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Subsidiary of the Company) or
permit any Person (other than the Company or a Subsidiary of the Company) to own
any Preferred Stock of any Subsidiary of the Company.
SECTION 4.19. Conduct of Business.
The Company and its Subsidiaries will not engage in any businesses
which are not the same, similar or related to the businesses in which the
Company and its Subsidiaries are engaged on the Issue Date.
SECTION 4.20. INTENTIONALLY OMITTED
SECTION 4.21. Additional Guarantees.
If at any time subsequent to the Issue Date, any of the Company's
Subsidiaries becomes a Guarantor of Indebtedness incurred pursuant to the Credit
Agreement (the foregoing being referred to herein as a "Guarantee Condition")
such Subsidiary shall (a) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Securities and this Indenture on the terms set forth in Article Ten
and (b) deliver to the Trustee an Opinion of Counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Subsidiary
and constitutes a legal, valid, binding and enforceable obligation of such
Subsidiary, except as the foregoing may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies. Thereafter, such Subsidiary shall be a Guarantor for all
purposes of this Indenture.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidations and Sale of Assets.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and its Subsidiaries), whether as an entirety
or substantially as an entirety to any Person unless: (a) either (i) the Company
shall be the surviving or continuing corporation or (ii) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and its
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any state thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Securities and the
performance of every covenant of the Securities and this Indenture on the part
of the Company to be performed or observed; (b) immediately after giving effect
to such transaction and the assumption contemplated by clause (a)(ii)(y) above
(including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (i) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (ii) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
paragraph (a) of Section 4.04 hereof; (c) immediately before and immediately
after giving effect to such transaction and the assumption contemplated by
clause (a)(ii)(y) above (including, without limitation, giving effect to any
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or
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be continuing; and (d) the Company or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
(b) For purposes of the foregoing paragraph (a), the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all
or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any such consolidation, merger, conveyance, lease or transfer
in accordance with the foregoing provisions of this Article Five, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made will succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such successor had
been named as the Company therein, and thereafter (except in the case of a sale,
assignment, transfer, lease, conveyance or other disposition) the predecessor
corporation will be relieved of all further obligations and covenants under this
Indenture and the Securities; provided that solely for purposes of computing
amounts described in subclauses (w), (x) and (y) of Section 4.03, any successor
Person shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods
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subsequent to the effective time of such merger, consolidation or transfer of
assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company fails to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of
30 days;
(b) the Company fails to pay the principal on any Securities, when
such principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(c) the Company or any Subsidiary of the Company defaults in the
observance or performance of any other covenant or agreement contained in
this Indenture, which default continues for a period of 30 days after the
Company receives written notice specifying the default (and demanding that
such default be remedied) from the Trustee or the Holders of at least 25%
of the outstanding principal amount of the Securities (except in the case
of a default with respect to Section 5.01, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(d) the Company or any Subsidiary of the Company defaults under 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
of any Subsidiary of the Company (or the payment of which is guaranteed by
the Company or any Subsidiary of the Company), whether such Indebtedness
now exists or is created after the Issue Date, which default (i) is caused
by a failure to pay principal of or premium, if any, or interest on such
Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default
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(a "payment default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a payment
default or the maturity of which has been so accelerated, aggregates at
least $5,000,000;
(e) one or more judgments in an aggregate amount in excess of
$3,000,000 (which are not covered by (i) insurance as to which the insurer
has not disclaimed coverage or (ii) indemnification under the
Recapitalization Agreement as to which BP has not disputed entitlement)
shall have been rendered against the Company or any of its Subsidiaries
and such judgments remain undischarged, unpaid or unstayed for a period of
60 days after such judgment or judgments become final and non-appealable;
(f) the Company or any of its Significant Subsidiaries (i) admits in
writing its inability to pay its debts generally as they become due, (ii)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (iii) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (iv) consents to the appointment of a Custodian of it or
for substantially all of its property, (v) consents to or acquiesces in
the institution of a bankruptcy or an insolvency proceeding against it,
(vi) makes a general assignment for the benefit of its creditors or (vii)
takes any partnership or corporate action, as the case may be, to
authorize or effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any Bankruptcy
Law, which shall (i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any of its Subsidiaries, (ii) appoint a Custodian of the
Company or any of its Subsidiaries or for substantially all of any of
their property or (iii) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
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(h) any Guarantee (if and when delivered) of a Significant
Subsidiary ceases to be in full force and effect or any Guarantee of a
Significant Subsidiary is declared to be null and void and unenforceable
or any Guarantee of a Significant Subsidiary is found to be invalid or any
Guarantor which is a Significant Subsidiary denies its liability under its
Guarantee (other than by reason of release of such Guarantor in accordance
with the terms of this Indenture).
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above) shall occur and be continuing, the Trustee or the
Holders of at least 25% in principal amount of outstanding Securities may
declare the principal of, premium, if any, and accrued and unpaid interest on
all the Securities to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a "notice
of acceleration", and the same shall become immediately due and payable. If an
Event of Default specified in clause (f) or (g) above occurs and is continuing,
then all unpaid principal of, and premium, if any, and accrued and unpaid
interest on all of the outstanding Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (e) in the event of the
cure or waiver of an Event of Default of the type described in clause (f) or (g)
of the description of Events of Default above, the Trustee shall have received
an Officers' Certificate and an Opinion of Counsel that such Event of Default
has been
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cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less
than a majority in principal amount of the outstanding Securities by notice to
the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (a) and (b) of Section 6.01. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
The Holders of not less than a majority in principal amount of the
outstanding Securities may 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 it. Subject to Section 7.01, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
that
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the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice
of a continuing Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) during such 30-day period the Holder or Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
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SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest and fees remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount 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.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and 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 compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder 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 Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
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First: to the Trustee for amounts due under
Section 7.07;
Second: to Holders for interest accrued on the
Securities, ratably, without preference or priority of any
kind, according to the amounts due and payable on the
Securities for interest;
Third: to Holders for principal amounts due and
unpaid on the Securities, ratably, without preference or
priority of any kind, according to the amounts due and
payable on the Securities for principal; and
Fourth: to the Company or, if applicable, the
Guarantors, as their respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
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 or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default actually known to the Trustee has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this
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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
his or her own affairs. The Trustee will be under no obligation to exercise any
of its rights or powers under this Indenture at the request of any of the
holders of Securities, unless they shall have offered to the Trustee security
and indemnity satisfactory to it.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(1) The Trustee need perform only those duties as are specifically
set forth herein or in the TIA and no others and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
(2) 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 and such
other documents delivered to it pursuant to Section 12.04 hereof furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(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 to take or omit to take any action
under this
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Indenture or take any action at the request or direction of Holders if it shall
have reasonable grounds for believing that repayment of such funds is not
assured to it or it does not receive an indemnity satisfactory to it in its sole
discretion against such risk, liability, loss, fee or expense which might be
incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) In the absence of bad faith, negligence or willful misconduct on
the part of the Trustee, the Trustee shall not be responsible for the
application of any money by any Paying Agent other than the Trustee.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel, which shall conform to
the provisions of Section 11.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent (other
than an agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
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(e) The Trustee may consult with counsel and the advice or opinion
of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication. The
Trustee makes no representations with respect to the effectiveness or adequacy
of this Indenture.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such event, the Trustee shall mail to each
Securityholder, as their names and addresses appear on the Securityholder list
described in Section 2.05, notice of the uncured Default or Event of Default
within 60 days after the Trustee receives such notice. Except in the case of a
Default or an Event of Default in payment of principal of, or interest on, any
Security, including
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the failure to make payment on (i) the Change of Control Payment Date pursuant
to a Change of Control Offer or (ii) the Net Proceeds Offer Payment Date
pursuant to a Net Proceeds Offer, or the Trustee may withhold the 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 withholding the notice is in the interest of the
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15, beginning with the first May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA Section 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Securityholder a brief report
dated as of such May 15 that complies with TIA Section 313(a). The Trustee also
shall comply with TIA Sections 313(b) 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances (including reasonable fees and expenses of counsel)
incurred or made by it in addition to the compensation for its services, except
any such disbursements, expenses and advances as may be attributable to the
Trustee's negligence or willful misconduct. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel and any taxes or other expenses incurred by a
trust created pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee and each predecessor trustee
for, and hold it harmless against, any
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loss, liability, claim, damage or expense incurred by the Trustee to the extent
not caused by any negligence or willful misconduct on its part arising out of or
in connection with the administration of this trust and its duties under this
Indenture, including the reasonable expenses and attorneys' fees of defending
itself against any claim of liability arising hereunder. The Trustee shall
notify the Company promptly of any claim asserted against the Trustee for which
it may seek indemnity. However, the failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense (and may
employ its own counsel at its own expense) at the Company's expense. The Company
need not reimburse any expense or indemnify against any loss or liability
incurred by the Trustee as a result of the violation of this Indenture by the
Trustee to the extent such violation arose from the Trustee's negligence or
willful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a senior claim prior to the Securities against all money
or property held or collected by the Trustee, in its capacity as Trustee.
When the Trustee incurs expenses or renders services after an Event
of Default specified in clause (f) or (g) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
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(2) the Trustee is adjudged a bankrupt or an
insolvent;
(3) a receiver or other public officer takes charge
of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be excluded
from the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Company.
The Trustee, in its capacity as Trustee hereunder shall comply with
TIA Section 311(a), excluding any creditor relationship listed in TIA Section
311(b). A Trustee who has resigned or been removed shall be subject to TIA
Section 311(a) to the extent indicated.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
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(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and the Guarantors shall be deemed
to have been released and discharged from their obligations with respect to the
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections and matters
under this Indenture referred to in (i) and (ii) below, and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of premium, if any, and interest on such Securities
when such payments are due and any Guarantor's obligations in respect thereof,
and (ii) obligations listed in Section 8.03, subject to compliance with this
Section 8.01. The Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) below with
respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article Five and in
Sections 4.03 through 4.21 with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Securities, the Company, its Subsidiaries and any Guarantor
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01(c),
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nor shall any event referred to in Section 6.01(d), (e), (h) or (i) thereafter
constitute a Default or an Event of Default thereunder but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(1) The Company shall have irrevocably deposited in trust with the
Trustee, pursuant to an irrevocable trust and security agreement in form
and substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by,
the United States of America for the payment of which obligation or
guarantee the full faith and credit of the United States of America is
pledged ("U.S. Government Obligations") maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of the reinvestment of such interest and after payment of
all Federal, state and local taxes or other charges or assessments in
respect thereof payable by the Trustee, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof (in form and substance reasonably satisfactory to
the Trustee) delivered to the Trustee, to pay the principal of, premium,
if any, and interest on all the outstanding Securities on the dates on
which any such payments are due and payable in accordance with the terms
of this Indenture and of the Securities;
(2) Such deposits shall not cause the Trustee to have a conflicting
interest as defined in and for purposes of the TIA;
(3) The Trustee shall have received Officers' Certificates stating
that no Default or Event of Default or event which with notice or lapse of
time or both would become a Default or an Event of Default with respect to
the Securities shall have occurred and be continuing on the date of such
deposit or, insofar as Section 6.01(f) or (g) is concerned, at any time
during the period ending on the 91st day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period);
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(4) The Trustee shall have received Officers' Certificates stating
that such deposit will not result in a Default under this Indenture or a
breach or violation of, or constitute a default under, any other material
instrument or agreement to which the Company or any of its Subsidiaries is
a party or by which it or its property is bound;
(5) (i) In the event the Company elects paragraph (b) hereof, the
Company shall deliver to the Trustee an Opinion of Counsel in the United
States, in form and substance reasonably satisfactory to the Trustee to
the effect that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall state that Holders of the Securities will not recognize income gain
or loss for Federal income tax purposes as a result of such deposit and
the defeasance contemplated hereby and will be subject to Federal income
taxes in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred, or (ii) in the event the
Company elects paragraph (c) hereof, the Company shall deliver to the
Trustee an Opinion of Counsel in the United States, in form and substance
reasonably satisfactory to the Trustee, to the effect that Holders of the
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and the defeasance contemplated
hereby and will be subject to Federal income tax in the same amounts and
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred;
(6) The deposit shall not result in the Company, the Trustee or the
trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940;
(7) The Company shall have delivered to the Trustee an Officer's
Certificate, in form and substance reasonably satisfactory to the Trustee,
stating that the deposit under clause (1) was not made by the Company or
any Subsidiary of the Company with the intent of preferring the Holders
over any other creditors of the Company defeating,
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hindering, delaying or defrauding any other creditors of the Company or
any Subsidiary of the Company or others;
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to
the effect that (A) the trust funds will not be subject to the rights of
holders of Indebtedness of the Company or any Guarantor other than the
Securities and (B) assuming no intervening bankruptcy of the Company
between the date of deposit and the 91st day following the deposit and
that no Holder of Securities is an insider of the Company, after the
passage of 90 days following the deposit, the trust funds will not be
subject to any applicable bankruptcy, insolvency, reorganization or
similar law affecting creditors' rights generally; and
(9) The Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; provided, however, that no deposit
under clause (1) above shall be effective to terminate the obligations of
the Company under the Securities or this Indenture prior to 90 days
following any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company.
SECTION 8.02. Satisfaction and Discharge.
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Securities, as expressly provided for in this Indenture) as to all
outstanding Securities when:
(1) either (a) all the Securities, theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been
replaced or paid and Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged
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from such trust) have been delivered to the Trustee for cancellation or
(b) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Securities
not theretofore delivered to the Trustee for cancellation, for principal
of, premium, if any, and interest on the Securities to the date of deposit
together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(2) the Company has paid all other sums payable under this Indenture
by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions
precedent under this Indenture relating to the satisfaction and discharge
of this Indenture have been complied with.
SECTION 8.03. Survival of Certain Obligations.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Securities referred to in Section 8.01 or 8.02, the respective
obligations of the Company and the Trustee under Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.07, 2.10, 2.12, 2.13, 4.01, 4.02, 6.07, Article Seven, Sections
8.05, 8.06 and 8.07 shall survive until the Securities are no longer
outstanding, and thereafter the obligations of the Company and the Trustee under
Sections 7.07, 8.05, 8.06 and 8.07 shall survive. Nothing contained in this
Article Eight shall abrogate any of the obligations or duties of the Trustee
under this Indenture.
SECTION 8.04. Acknowledgment of Discharge by Trustee.
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 have been satisfied, (ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company and (iii) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's and
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the Guarantors' obligations under this Indenture except for those surviving
obligations specified in Section 8.03.
SECTION 8.05. Application of Trust Assets.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it pursuant to this Article Eight in the irrevocable
trust established pursuant to Section 8.01. The Trustee shall apply the
deposited U.S. Legal Tender or the U.S. Government Obligations, together with
earnings thereon, through the Paying Agent, in accordance with this Indenture
and the terms of the irrevocable trust agreement established pursuant to Section
8.01, to the payment of principal of and interest on the Securities. The U.S.
Legal Tender or U.S. Government Obligations so held in trust and deposited with
the Trustee in compliance with Section 8.01 shall not be part of the trust
estate under this Indenture, but shall constitute a separate trust fund for the
benefit of all Holders entitled thereto.
SECTION 8.06. Repayment to the Company or the
Guarantors; Unclaimed Money.
Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to
the Company, or if deposited with the Trustee by any Guarantor, to such
Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess
money, determined in accordance with Section 8.01, held by it at any time. The
Trustee and the Paying Agent shall pay to the Company or any Guarantor, as the
case may be, upon receipt by the Trustee or the Paying Agent, as the case may
be, of an Officers' Certificate, any money held by it for the payment of
principal, premium, if any, or interest that remains unclaimed for one year
after payment to the Holders is required; provided, however, that the Trustee
and the Paying Agent before being required to make any payment may, but need
not, at the expense of the Company cause to be published once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that after a date
specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company or any Guarantor, as the
case may be, Securityholders entitled to money must look solely to the Company
and the Guarantors for payment as general creditors unless an applicable
abandoned property law
<PAGE> 82
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designates another Person, and all liability of the Trustee or Paying Agent with
respect to such money shall thereupon cease.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with this Indenture by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then and only then the Company's and each Guarantor's, if any,
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture until
such time as the Trustee is permitted to apply all such U.S. Legal Tender or
U.S. Government Obligations in accordance with this Indenture; provided,
however, that if the Company or the Guarantors, as the case may be, have made
any payment of principal of, premium, if any, or interest on any Securities
because of the reinstatement of its obligations, the Company or the Guarantors,
as the case may be, shall be, subrogated to the rights of the holders of such
Securities to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, the Guarantors and the Trustee, together, may amend or
supplement this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to evidence the succession in accordance with Article Five
hereof of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Securities;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
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(4) to make any other change that does not materially adversely
affect the rights of any Securityholders hereunder; or
(5) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA; or
(6) to add or release any Guarantor pursuant to the
terms of this Indenture.
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, the Guarantors and the
Trustee, together, with the written consent of the Holder or Holders of at least
a majority in aggregate principal amount of the outstanding Securities, may
amend or supplement this Indenture or the Securities, without notice to any
other Securityholders. Subject to Section 6.07, the Holder or Holders of a
majority in aggregate principal amount of the outstanding Securities may waive
compliance by the Company with any provision of this Indenture or the Securities
without notice to any other Securityholder. Without the consent of each
Securityholder affected, however, no amendment, supplement or waiver, including
a waiver pursuant to Section 6.04, may:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change or have the effect of changing
the time for payment of interest, including default interest, on any
Security;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any Security, or change the date on which any
Securities may be subject to redemption or repurchase, or reduce the
redemption or purchase price therefor;
(4) make any Securities payable in money other than that stated in
the Securities;
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(5) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Securities to waive Defaults or Events of Default;
(6) make any changes in Section 6.04, 6.07 or this Section 9.02;
(7) modify or change any provision of this Indenture or the related
definitions affecting the ranking of the Securities or any Guarantee, in a
manner which adversely affects the Holders;
(8) amend, modify or change in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or, modify any of
the provisions or definitions with respect thereto; or
(9) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms of
this Indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture, the Securities or the
Guarantees shall comply with the TIA as then in effect.
<PAGE> 85
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SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (10) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Company may require the Holder of the Security to deliver it to
the Trustee. The Company may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
<PAGE> 86
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the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and constituted the legal, valid and binding obligations of the
Company enforceable in accordance with its terms. Such Opinion of Counsel shall
be at the expense of the Company.
ARTICLE TEN
GUARANTEE
SECTION 10.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally guarantees (such guarantee to
be referred to herein as a "Guarantee"), on a senior basis jointly and
severally, to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, the Securities or the
Obligations of the Company hereunder or thereunder, that: (i) the principal of
and interest on the Securities will be promptly paid in full when due, subject
to any applicable grace period, whether at maturity, by acceleration or
otherwise and interest on the overdue principal, if any, and interest on any
interest, to the extent lawful, of the Securities and all other Obligations of
the Company to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (ii) in case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will
<PAGE> 87
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be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, subject to any applicable grace period, whether at
stated maturity, by acceleration or otherwise, subject, however, in the case of
clauses (i) and (ii) above, to the limitations set forth in Section 10.03. Each
Guarantor hereby agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, and action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in this Guarantee. If any Securityholder or the Trustee is required by any court
or otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Securityholder, this Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
SECTION 10.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE> 88
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SECTION 10.03. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 10.05, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 10.04. Guarantors May Consolidate,
etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor or shall prevent any sale of assets or conveyance
of the property of a Guarantor as an entirety or substantially as an entirety,
to the Company or another Guarantor. Upon any such consolidation, merger, sale
or conveyance, the Guarantee given by such Guarantor shall no longer have any
force or effect.
(b) Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Guarantor (or all or substantially all its assets)
to a Person which is not a Subsidiary of the Company and which sale or
disposition is otherwise in compliance with Section 4.17 and the other terms of
this Indenture, such Guarantor shall be deemed released from all obligations
under this Article Ten without any further action required on the part of the
Trustee or any Holder.
The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate and Opinion of Counsel certifying as to the compliance with this
Section 10.04. Any Guarantor not so released remains liable for the
<PAGE> 89
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full amount of principal of and interest on the Securities as provided in this
Article Ten.
SECTION 10.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets (as
defined below) of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Company's obligations with respect to the Securities or any other
Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of
such Guarantor at any date shall mean the lesser of the amount by which (x) the
fair value of the property of such Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date), but excluding liabilities under the Guarantee, of such Guarantor at such
date and (y) the present fair salable value of the assets of such Guarantor at
such date exceeds the amount that will be required to pay the probable liability
of such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), excluding debt in
respect of the Guarantee of such Guarantor, as they become absolute and matured.
SECTION 10.06. Waiver of Subrogation.
Until all Guarantee Obligations are paid in full, each Guarantor
hereby irrevocably waives any claims or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under the Guarantee
and this Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Holder of Securities against the Company, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of the
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preceding sentence and the Securities shall not have been paid in full, such
amount shall have been deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Holders of the Securities,
and shall, forthwith be paid to the Trustee for the benefit of such Holders to
be credited and applied upon the Securities, whether matured or unmatured, in
accordance with the terms of this Indenture. Each Guarantor acknowledges that it
will receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
10.06 is knowingly made in contemplation of such benefits.
SECTION 10.07. Execution of Guarantee.
To evidence their guarantee to the Securityholders set forth in this
Article Ten, the Guarantors hereby agree to execute the Guarantee in
substantially the form included in the Securities, which shall be endorsed on
each Security ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its Guarantee set forth in this Article Ten shall
remain in full force and effect notwithstanding any failure to endorse on each
Security a notation of such Guarantee. Each such Guarantee shall be signed on
behalf of each Guarantor by two Officers, or an Officer and an Assistant
Secretary or one Officer shall sign and one Officer or an Assistant Secretary
(each of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to such Guarantee prior to the authentication of
the Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the
Guarantee may be by manual or facsimile signature of such officers and may be
imprinted or otherwise reproduced on the Guarantee, and in case any such officer
who shall have signed the Guarantee shall cease to be such officer before the
Security on which such Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security
nevertheless may be authenticated and delivered or disposed of as though the
Person who signed the Guarantee had not ceased to be such officer of the
Guarantor.
SECTION 10.08. Waiver of Stay, Extension or Usury Laws.
Each Guarantor convenants (to the extent that it may lawfully do so)
that it will not at any time insist upon,
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plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law that would prohibit or
forgive each such Guarantor from performing its Guarantee as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) each such Guarantor hereby expressly waives 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.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 318(c) of the TIA, the imposed
duties shall control.
SECTION 11.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company or a Guarantor:
Unifrax Investment Corp.
2351 Whirlpool Street
Niagra Falls, NY 14305
Attention: Chief Financial Officer
Telephone: (716) 278-3800
Facsimile: (716) 278-3900
with copies to:
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Kirtland Capital Partners II, L.P.
2550 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
Attention: Thomas N. Littman
Telephone: (216) 585-9010
Facsimile: (216) 585-9699
and
Baker & Hostetler
3200 National City Center
Cleveland, Ohio 44114
Attention: James B. Griswold, Esq.
Telephone: (216) 621-0200
Facsimile: (216) 696-0740
if to the Trustee:
PNC Bank, National Association
Corporate Trust Department
One Oliver Plaza - 27th Floor
210 Sixth Avenue
Pittsburgh, PA 15222-2602
Telephone: (412) 762-5540
Facsimile: (412) 762-8226
Each of the Company and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company and the Trustee, shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the
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registration books of the Registrar and shall be sufficiently given to him if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture, the
Securities or the Guarantees. The Company, the Trustee, the Registrar and any
other Person shall have the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed or effected by the Company, if any, provided for
in this Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, any and all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements
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or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 11.07. Legal Holidays.
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day.
SECTION 11.08. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Indenture, provided that such
jurisdiction shall be non-exclusive.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
<PAGE> 95
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SECTION 11.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities, this Indenture or the Guarantees or for any claim based
on, in respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 11.11. Successors.
All agreements of the Company and the Guarantors in this Indenture,
the Securities and the Guarantees shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
represent the same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture, in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
<PAGE> 96
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
THE COMPANY:
UNIFRAX INVESTMENT CORP.
By:
---------------------------------
Name:
Title:
Attest:
--------------------
THE TRUSTEE:
PNC Bank, National Association
as Trustee
By:
---------------------------------
Name:
Title:
<PAGE> 97
EXHIBIT A
[FORM OF SECURITY]
[FACE OF SECURITY]
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Company
or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
Unless and until this Global Security is exchanged in whole or in
part for the individual Securities represented hereby, this Global Security 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 by a
Depository or any such nominee to a successor Depository or a nominee of a
successor Depository.
<PAGE> 98
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% Senior Note
due , 2003
CUSIP No.:
No. [ ] $[ ]
UNIFRAX INVESTMENT CORP., a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to [ ] or registered assigns, the principal sum of $[ ] Dollars, on
, 2003.
Interest Payment Dates: and ,
commencing 15, 199
Record Dates: and
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated:
UNIFRAX INVESTMENT CORP.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE> 99
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[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the % Senior Notes due 2003, described in the
within-mentioned Indenture.
Dated: PNC Bank, National Association
as Trustee
By
-------------------------------
Authorized Signatory
<PAGE> 100
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(REVERSE OF SECURITY)
UNIFRAX INVESTMENT CORP.
% Senior Note
due , 2003
1. Interest.
UNIFRAX INVESTMENT CORP., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on and
of each year (the "Interest Payment Date"), commencing. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from . Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
<PAGE> 101
-5-
3. Paying Agent and Registrar.
Initially, PNC Bank, National Association (the "Trustee") will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Registrar or
co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
(the "Indenture"), among the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
amount to $100,000,000.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after ____________, __, 2000 at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the twelve-month period commencing on of the years
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2000............................. %
2001............................. %
2002 and thereafter.............. 100.000%
</TABLE>
6. Optional Redemption upon Public Equity Offering.
At any time, or from time to time, on or prior to ________ __, 1999,
the Company may, at its option, use the net
<PAGE> 102
-6-
cash proceeds of one or more Public Equity Offerings to redeem up to $
aggregate principal amount of Securities at a redemption price equal to %
of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of redemption; provided that at least %
of the principal amount of Securities originally issued remains outstanding
immediately after giving effect to any such redemption. In order to effect the
foregoing redemption with the net cash proceeds of a Public Equity Offering, the
Company shall make such redemption not more than 60 days after the consummation
of such Public Equity Offering.
7. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations of
$1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
8. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
9. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
<PAGE> 103
-7-
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for one year, the Trustee and the Paying Agent will repay the funds to the
Company at its request. After that, all liability of the Trustee and such Paying
Agent with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any
<PAGE> 104
-8-
Holder, the parties thereto may amend or supplement the Indenture, the
Securities and the Guarantees to, among other things, cure any ambiguity, defect
or inconsistency, provide for uncertificated Securities in addition to or in
place of certificated Securities or comply with any requirements of the
Commission in connection with the qualification of the Indenture under the TIA,
or make any other change that does not materially adversely affect the rights of
any Holder of a Security.
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Subsidiaries to make restricted
payments, to incur indebtedness, to create liens, to issue preferred or other
capital stock of its Subsidiaries, to sell assets, to permit restrictions on
dividends and other payments by Subsidiaries of the Company to the Company, to
consolidate, merge or sell all or substantially all of its assets, to engage in
transactions with affiliates or to engage in certain businesses. The limitations
are subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of
<PAGE> 105
-9-
Securities and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security 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), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
<PAGE> 106
GUARANTEE
The Guarantors (as defined in the Indenture referred to in the
Security upon which this notation is endorsed and each hereinafter referred to
as a "Guarantor," which term includes any successor person under the Indenture)
have unconditionally guaranteed on a senior basis (such guarantee by each
Guarantor being referred to herein as the "Guarantee") (i) the due and punctual
payment of the principal of and interest on the Securities, whether at maturity,
by acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Securities, to the extent lawful,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven of the Indenture and (ii) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, that the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Guarantor shall have any liability under the Guarantee
by reason of his or its status as such stockholder, officer, director or
incorporator.
The Guarantees shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantees are noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
GUARANTORS:
Attest: By:
-------------------------- -------------------------------
Name:
Title:
<PAGE> 107
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or
transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee
or transferee)
and irrevocably appoint_____________________________________________
agent to transfer this Security on the books of the Company.
The agent may substitute another to act for him.
Dated: __________________ Signed: ____________________
(Sign exactly as
name appears on the
other side of this
Security)
Signature Guarantee: ______________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE> 108
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ] Section 4.17 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $___________
Date: ___________________ Your Signature: _____________________
(Sign exactly as
your name appears
on the other side
of this Security)
Signature Guarantee:
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE> 1
Exhibit 5.1
BAKER & HOSTETLER
1900 E. NINTH STREET
CLEVELAND, OH 44114-3485
October 24, 1996
Unifrax Investment Corp.
2351 Whirlpool Street
Niagra Falls, New York 14305
Re: Registration Statement on Form S-1 with respect to
$100,000,000 aggregate principal amount of Senior
Notes due 2003 of Unifrax Investment Corp.
Dear Sirs:
We have acted as counsel to Unifrax Investment Corp., a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-1 (the "Registration Statement") filed under the Securities
Act of 1933, as amended (the "Act"), relating to the proposed public offering of
up to $100,000,000 aggregate principal amount of the Company's Senior Notes due
2003 (the "Securities") to be issued under an Indenture between the Company and
PNC Bank, National Association, as trustee (the "Indenture").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents as we have deemed necessary
for the purposes of rendering this opinion including, without limitation, copies
of resolutions adopted by the Board of Directors, the Certificate of
Incorporation and By-Laws, of the Company, the Indenture (including the form of
the Securities), and the form of Underwriting Agreement filed as exhibits to the
Registration Statement. In our examination, we have assumed that the Indenture
has been duly executed and delivered.
Based upon the foregoing, we are of the opinion that:
When (a) the Securities in substantially the form filed as
part of Exhibit 4.1 to the Registration Statement shall have been duly executed
and authenticated in accordance with the terms of the Indenture, (b) the
Indenture shall have been qualified under the Trust Indenture Act of 1939 and
(c) the Securities shall have been issued and sold as described in the
Registration
<PAGE> 2
Unifrax Investment Corp.
October 24, 1996
Page 2
Statement in accordance with the terms and conditions of the Underwriting
Agreement substantially in the form of Exhibit 1.1 to the Registration Statement
with the blanks appropriately filled in, and in a manner contemplated in the
Registration Statement, the Securities will be duly authorized and valid and
binding obligations of the Company, except as may be limited by bankruptcy,
insolvency, reorganization or other laws relating to the enforcement of
creditors' rights generally or by general principles of equity.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under "Legal
Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Baker & Hostetler
__________________________
<PAGE> 1
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
DATED AS OF OCTOBER __, 1996
AMONG
UNIFRAX CORPORATION
AS BORROWER,
BANK OF AMERICA ILLINOIS, AS AGENT AND A LENDER,
NATIONAL CITY BANK, AS A LENDER,
AND
THE OTHER LENDERS PARTY HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND OTHER TERMS....................................................................................1
1.1. Definitions........................................................................................1
1.2. Other Definitional Provisions.....................................................................21
1.3. Interpretation of Agreement.......................................................................21
1.4. Compliance with Financial Restrictions............................................................22
1.5. Currency Equivalents Generally....................................................................22
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.......................................................................22
2.1. Loans.............................................................................................22
2.2. Letters of Credit.................................................................................26
2.3. Loan Account; Demand Deposit Account..............................................................28
2.4. Interest and Fees.................................................................................28
2.5. Requests for Loans and Letters of Credit; Borrowing Base Certificates; Other Information..........31
2.6. Statements........................................................................................32
2.7. Overdraft Loans...................................................................................32
2.8. Over Advances.....................................................................................33
2.9. All Loans One Obligation..........................................................................33
2.10. Making of Payments; Application of Collections; Charging of Accounts..............................33
2.11. Agent's Election Not to Enforce...................................................................35
2.12. Intentionally Omitted.............................................................................35
2.13. Setoff............................................................................................35
2.14. Settlements, Distributions and Apportionment of Payments..........................................35
3. COLLATERAL....................................................................................................36
3.1. Grant of Security Interest........................................................................36
3.2. Accounts Receivable...............................................................................38
3.3. Inventory.........................................................................................41
3.4. Equipment.........................................................................................41
3.5. Supplemental Documentation........................................................................42
3.6. Collateral for the Benefit of Agent and Lenders...................................................43
4. REPRESENTATIONS AND WARRANTIES................................................................................43
4.1. Organization......................................................................................43
4.2. Authorization.....................................................................................43
4.3. No Conflicts......................................................................................44
4.4. Validity and Binding Effect.......................................................................44
4.5. No Default........................................................................................44
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
4.6. Financial Statements..............................................................................44
4.7. Insurance.........................................................................................45
4.8. Litigation; Contingent Liabilities................................................................45
4.9. Liens.............................................................................................45
4.10. Subsidiaries......................................................................................46
4.11. Partnerships; Joint Ventures......................................................................46
4.12. Business and Collateral Locations.................................................................46
4.13. Real Property.....................................................................................47
4.14. Eligibility of Collateral.........................................................................47
4.15. Control of Collateral; Lease of Property..........................................................47
4.16. Patents, Trademarks, etc..........................................................................47
4.17. Solvency..........................................................................................47
4.18. Contracts; Labor Matters..........................................................................48
4.19. Pension and Welfare Plans.........................................................................48
4.20. Regulations G and U...............................................................................48
4.21. Compliance........................................................................................49
4.22. Taxes.............................................................................................49
4.23. Investment Company Act Representation.............................................................49
4.24. Public Utility Holdings Company Act Representation................................................49
4.25. Environmental and Safety and Health Matters.......................................................49
4.26. Other Transactions................................................................................50
4.27. Related Agreements and Acquisition Documents......................................................50
5. COVENANTS.....................................................................................................51
5.1. Financial Statements and Other Reports............................................................51
5.2. Notices...........................................................................................53
5.3. Existence.........................................................................................55
5.4. Nature of Business................................................................................55
5.5. Books, Records and Access.........................................................................55
5.6. Insurance.........................................................................................56
5.7. Repair............................................................................................57
5.8. Taxes.............................................................................................57
5.9. Compliance........................................................................................57
5.10. Pension Plans.....................................................................................58
5.11. Merger, Purchase and Sale.........................................................................58
5.12. Restricted Payments...............................................................................58
5.13. Stock.............................................................................................59
5.14. Indebtedness......................................................................................59
5.15. Liens.............................................................................................59
5.16. Guaranties........................................................................................60
5.17. Investments.......................................................................................60
5.18. Subsidiaries......................................................................................61
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
5.19. Intentionally Omitted.............................................................................61
5.20. Environmental Issues..............................................................................61
5.21. Related Agreements................................................................................62
5.22. Unconditional Purchase Options....................................................................62
5.23. Use of Proceeds...................................................................................62
5.24. Transactions with Related Parties.................................................................62
5.25. Amendment of Documents............................................................................62
5.26. Capital Expenditures Limitation...................................................................63
5.27. Minimum Fixed Charge Coverage Ratio...............................................................63
5.28. Minimum Net Worth.................................................................................64
5.29. Maximum Leverage..................................................................................64
5.30. Minimum Interest Coverage Ratio...................................................................65
5.31. Collateral at Sales Offices.......................................................................65
6. DEFAULT.......................................................................................................66
6.1. Event of Default..................................................................................66
6.2. Effect of Event of Default; Remedies..............................................................69
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S RIGHTS.................................................70
7.1. Notice of Disposition of Collateral...............................................................70
7.2. Application of Proceeds of Collateral.............................................................70
7.3. Care of Collateral................................................................................70
7.4. Performance of Borrower's Obligations.............................................................70
7.5. Agent's Rights....................................................................................71
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS.................................................71
8.1. Conditions Precedent to Initial Loans and Letters of Credit.......................................71
8.2. Continuing Conditions Precedent to all Loans; Certification.......................................75
9. INDEMNITY.....................................................................................................76
9.1. Environmental and Safety and Health Indemnity.....................................................76
9.2. General Indemnity.................................................................................76
9.3. Capital Adequacy..................................................................................77
10. AGENT........................................................................................................78
10.1. Appointment of Agent.............................................................................78
10.2. Nature of Duties of Agent........................................................................78
10.3. Agent in its Capacity as Lender..................................................................78
10.4. Independent Credit Analysis......................................................................79
10.5. General Immunity.................................................................................79
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
10.6. Action by Agent..................................................................................80
10.7. Right to Indemnity...............................................................................81
10.8. Rights and Remedies to be Exercised by Agent Only................................................81
10.9. Agent's Resignation..............................................................................81
10.10. Disbursement of Proceeds of Loans and Other Advances.............................................82
10.11. Release of Collateral............................................................................82
10.12. Agreement to Cooperate...........................................................................82
10.13. Sharing of Collateral............................................................................82
10.14. Lenders to Act as Agents.........................................................................83
11. GENERAL......................................................................................................83
11.1. Borrower's Waiver................................................................................83
11.2. Power of Attorney................................................................................83
11.3. Expenses and Attorneys' Fees.....................................................................84
11.4. BAI's Fees and Charges...........................................................................85
11.5. Lawful Interest..................................................................................85
11.6. No Waiver by Agent or any Lender; Amendments.....................................................86
11.7. Termination of Credit............................................................................86
11.8. Notices..........................................................................................87
11.9. Assignments and Participations; Information......................................................87
11.10. Borrower's Documentation; Confidentiality........................................................89
11.11. Severability.....................................................................................90
11.12. Successors.......................................................................................90
11.13. Construction.....................................................................................90
11.14. Consent to Jurisdiction..........................................................................90
11.15. Waiver of Jury Trial.............................................................................90
11.16. Judgment.........................................................................................91
</TABLE>
-iv-
<PAGE> 6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made as of this ____ day
of October, 1996 by and among BANK OF AMERICA ILLINOIS (in its individual
capacity, "BAI"), having its principal office at 231 South LaSalle Street,
Chicago, Illinois 60697, as Agent and a Lender, NATIONAL CITY BANK ("NCB"),
having its principal office at 1900 East Ninth Street, Cleveland, Ohio 44114, as
a Lender, the other Lenders from time to time party hereto, and UNIFRAX
CORPORATION ("Borrower"), a Delaware corporation having its principal office at
2351 Whirlpool Street, Niagara Falls, New York 14305-2413.
W I T N E S S E T H
-------------------
WHEREAS, Borrower may, from time to time, request loans or
other financial accommodations from Lenders, and the parties wish to provide for
the terms and conditions upon which such loans and other financial
accommodations shall be made;
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit (including any loan or advance or grant of credit by renewal or
extension) hereafter made to Borrower by, or on behalf of, Lenders, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS AND OTHER TERMS.
1.1. Definitions.
------------
In addition to terms defined elsewhere in this Agreement or
any SCHEDULE or EXHIBIT hereto, when used herein, the following terms shall have
the following meanings (such meanings shall be equally applicable to the
singular and plural forms of the terms used, as the context requires):
"Account Debtor" means any Person who is or who may become
obligated to Borrower, under, with respect to, or on account of an Account
Receivable, General Intangible or other Collateral.
"Account Receivable" means any account of Borrower and any
other right of Borrower to payment for goods sold or leased or for services
rendered, whether or not evidenced by an instrument or chattel paper and whether
or not yet earned by performance.
"Acquisition" means (i) the redemption of eighty (80) shares
of capital stock of Borrower, (ii) the acquisition by Holdings of ninety percent
(90%) of the remaining capital stock of Borrower pursuant to the terms of the
Recapitalization Agreement; and (iii) the merger of Unifrax Investment with and
into Borrower.
"Acquisition Documents" means the Recapitalization Agreement
and the agreements, instruments and documents executed in connection therewith,
including without
<PAGE> 7
limitation the Subordinated Promissory Note, and the Certificate of Merger
between Unifrax Investment and Borrower and the agreements, instruments and
documents executed in connection therewith.
"Agent" means Bank of America Illinois, in its capacity as
agent for Lenders hereunder and under the Related Agreements, or any successor
agent pursuant to SECTION 10.
"Agreement" means this Loan and Security Agreement, as the
same may be amended, modified or supplemented from time to time.
"Annual Stock Repurchase Limit" has the meaning ascribed to
such term in SECTION 5.12.
"Application" means an application by Borrower, in a form, and
containing terms and provisions, reasonably acceptable to Agent and Issuer, for
the issuance by Issuer of a Letter of Credit.
"Applicable Currency" means, as to any particular payment or
Loan, Dollars or the Offshore Currency in which it is denominated or payable.
"Applicable Floating Margin" means, with respect to any
portion of the Loans constituting a Floating Rate Loan, the Applicable Margin
pertaining thereto.
"Applicable LIBOR Margin" means, with respect to any portion
of the Loans constituting a LIBOR Rate Loan, the Applicable Margin with respect
thereto.
"Applicable Margin" means, with respect to any portion of the
Revolving Loans constituting a LIBOR Rate Loan, a percentage equal to one and
three quarters percent (1.75%), with respect to any portion of the Term Loan
constituting a LIBOR Rate Loan, a percentage equal to two percent (2.0%), with
respect to any portion of Revolving Loans constituting a Floating Rate Loan, a
percentage equal to zero, and with respect to any portion of the Term Loan
constituting a Floating Rate Loan, a percentage equal to one-quarter of one
percent (0.25%); provided, that the Applicable Margin for Revolving Loans and
the Term Loan will be adjusted on the first day of each calendar quarter,
commencing on October 1, 1997, depending on the Leverage Ratio on the last day
of the calendar quarter immediately preceding such calendar quarter, as follows:
-2-
<PAGE> 8
<TABLE>
<CAPTION>
Applicable LIBOR Applicable LIBOR Applicable Floating Applicable Floating
Margin for the Margin for the Margin for the Margin for the
Leverage Ratio Revolving Loans Term Loan Revolving Loans Term Loan
-------------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C>
Greater than or equal to 1.75% 2.00% 0% 0.25%
4.75:1.00
Greater than or equal to
3.50:1.00, but less than
4.75:1.00 1.50% 1.75% (0.25%) 0%
Less than 3.50:1.00 1.25% 1.50% (0.50%) (0.25%)
</TABLE>
The calculation of the Leverage Ratio as of the last day of a calendar quarter
shall be based on the financial statements received by Agent pursuant to SECTION
5.1.1. Each adjustment to the Applicable Margin shall be effective retroactively
as of the first day of each calendar quarter.
"Assignee Deposit Account" has the meaning ascribed to such
term in SECTION 3.2(d).
"Assignment and Acceptance Agreement" means an agreement in
the form of EXHIBIT C pursuant to which a Lender assigns all or a portion of its
rights, and delegates all or such portion of its obligations, under this
Agreement and the Related Agreements, to another Person.
"Attorneys' Fees" has the meaning ascribed to such term in
SECTION 11.3.
"BA" means Bank of America National Trust & Savings
Association.
"BAI" has the meaning ascribed to such term in the Preamble.
"Banking Day" means any day other than a Saturday, Sunday or
legal holiday on which banks are authorized or required to be closed for the
conduct of commercial banking business in Chicago, Illinois or San Francisco,
California; provided, with respect to LIBOR Rate Loans (including Offshore
Currency Loans), Banking Days shall not include a day on which dealings in
Dollars may not be carried on by BAI in the London interbank LIBOR market;
provided, further, that with respect to Offshore Currency Loans, Banking Days
shall not include a day on which dealings in the Applicable Currency may not be
carried on by BAI in the applicable foreign exchange interbank market.
"Base Net Worth" means Net Worth as of the Closing Date, after
giving effect to the Acquisition.
"Borrower" has the meaning ascribed to such term in the
Preamble.
"Borrowing Base" means (a) an amount equal to eighty-five
percent (85%) of the net amount of Eligible Accounts Receivable ("Accounts
Availability"), PLUS (b) the least of (i) an amount equal to the sum of (x)
sixty percent (60%) of the value (at the lower of cost or market) of Eligible
Inventory consisting of finished goods and raw materials and (y) the lesser of
(A) sixty
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<PAGE> 9
percent (60%) of the value (at the lower of cost or market) of Eligible
Inventory consisting of work-in-process, and (B) Three Hundred Thousand Dollars
($300,000), (ii) Six Million Dollars ($6,000,000), and (iii) sixty percent (60%)
of Accounts Availability, LESS (c) such reserves (including without limitation
reserves for rebates) as Agent elects to establish from time to time in its
reasonable discretion.
"Borrowing Base Certificate" means a certificate in the form
of EXHIBIT A attached hereto, executed and certified as accurate by an officer
of Borrower designated in writing by Borrower to Agent.
"BPX" means BP Exploration (Alaska) Inc., a Delaware
corporation.
"Capital Expenditures" means, for any period, the aggregate of
all expenditures by Borrower and its Subsidiaries for the acquisition or leasing
of fixed or capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which would be
capitalized under GAAP on a consolidated balance sheet of Borrower and its
Subsidiaries.
"Capitalized Lease" means any lease which is or is required to
be capitalized on the balance sheet of the lessee at such time in accordance
with GAAP.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interest, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (b) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one
year from the date of investment, issued or guaranteed by the United States
Government or issued by an agency or instrumentality thereof;
(b) commercial paper, maturing not more than one year from the
date of issue, which is issued by either
(i) a corporation (except any Company or Related Party of a
Company) organized under the laws of any State of the United States of
America or of the District of Columbia and rated at least A-1 by
Standard & Poors Ratings Group, a division of McGraw-Hill, Inc. ("S&P")
or P-1 by Moody's Investors Service, Inc. ("Moody's"), at the date of
investment, or
(ii) Agent or any Lender (or its holding company);
(c) any certificate of deposit or bankers' acceptance or
eurodollar time deposit, maturing not more than one year after the date of
issue, which is issued by any Lender, or issued by
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<PAGE> 10
any bank organized under the laws of the United States of America or any state
thereof or the District of Columbia or any United States branch of a foreign
bank having at the date of acquisition thereof combined capital and surplus of
not less than Two Hundred Fifty Million Dollars ($250,000,000), or issued by any
other financial institution if the amount of such investment is less than One
Hundred Thousand Dollars ($100,000);
(d) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof maturing or that may be put back to the issuer
thereof within one year from the date of acquisition thereof and, at the time of
acquisition, rated at least A-1 by S & P or P-1 by Moody's;
(e) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (a) above
entered into with any bank meeting the qualifications specified in clause (c)
above; or
(f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) of this definition.
"Closing Date" means the first date on which Loans are made,
or Letters of Credit are issued, under this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed to also refer to any successor sections.
"Collateral" has the meaning ascribed to such term in SECTION
3.1.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such Person's common stock, whether now or
hereafter outstanding, and includes, without limitation, all series and classes
of such common stock.
"Companies" means, collectively, Borrower and its
Subsidiaries; and "Company" means any one of the Companies.
"Credit" means the facility established under this Agreement
pursuant to which Lenders will make Revolving Loans to Borrower (the "Revolving
Credit") and the Term Loan to Borrower (the "Term Credit") and/or cause Issuer
to issue Letters of Credit for the account of Borrower.
"Default Rate" means, with respect to a Loan, the rate of
interest which is applicable to such Loan after the occurrence and during the
continuance of an Event of Default and upon written notice by Agent to Borrower,
as determined pursuant to SECTION 2.4.
"Demand Deposit Account" has the meaning ascribed to such term
in SECTION 2.3.
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<PAGE> 11
"Depository Accounts" has the meaning ascribed to such term in
SECTION 3.2(d).
"Discontinued Operations" has the meaning set forth in the
Recapitalization Agreement.
"Disproportionate Advance" has the meaning ascribed to such
term in SECTION 2.1.1(a).
"Dollar Equivalent" means, at any time, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in Dollars as
determined by Agent at such time on the basis of the Spot Rate for the purchase
of Dollars with such Offshore Currency.
"Dollars" and "$" each mean lawful money of the United States.
"EBITDA" means for any period, the sum of (a) net income (or
net loss) for such period, plus (b) interest expense for such period, plus (c)
tax expense for such period, plus (d) depreciation, amortization and other
non-cash charges for such period, all determined for Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP. For purposes
hereof, EBITDA for the first three calendar quarters of Fiscal Year 1996 is set
forth on EXHIBIT D.
"Eligible Account Receivable" means an Account Receivable
which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by
Borrower, which services have been fully performed and acknowledged and/or
accepted by the Account Debtor with respect thereto or (ii) the sale or lease of
goods by Borrower; and if it arises from the sale or lease of goods, (A) such
goods comply with such Account Debtor's specifications (if any) and have been
shipped to, or delivered to and accepted by, such Account Debtor and Borrower
does not have knowledge that the Account Debtor has failed to accept delivery of
all or a portion of such goods, and (B) Borrower has possession of shipping and
delivery receipts evidencing such shipment, delivery and acceptance;
(c) it is evidenced by an invoice rendered to the Account
Debtor with respect thereto which (i) is dated not earlier than the date of
shipment or performance, and (ii) is not unpaid on the date that is ninety (90)
days after the date of the invoice evidencing the Account Receivable;
(d) it is not owing by an Account Debtor with respect to which
twenty-five percent (25%) or more of the aggregate Accounts Receivable owing by
such Account Debtor to Borrower taken together are not Eligible Accounts
Receivable for any reason;
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<PAGE> 12
(e) it is not subject to any assignment, claim or Lien, other
than (i) a first priority Lien in favor of Agent, for the benefit of itself,
Issuer and Lenders, (ii) a Lien permitted under SECTION 5.15, and (iii) a Lien
consented to by Requisite Lenders in writing;
(f) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto, and is not subject to a
contra, setoff, counterclaim, claim denying liability thereunder, credit or
allowance (except any contra, setoff, counterclaim, claim denying liability
thereunder, credit or allowance which has been deducted in computing the net
amount of the applicable invoice as shown in the original schedule or Borrowing
Base Certificate furnished to Agent identifying or including such Account
Receivable) or adjustment by the Account Debtor with respect thereto, and such
Account Debtor has not refused to accept any of the goods or services which are
the subject of such Account Receivable or offered or attempted to return any of
such goods;
(g) there are no proceedings or actions which are then pending
against the Account Debtor with respect thereto or to which such Account Debtor
is a party which are reasonably likely to result in any material adverse change
in such Account Debtor's ability to pay any Account Receivable in full when due;
(h) it does not arise out of a contract which, by its terms,
forbids, restricts or makes void or unenforceable the assignment by Borrower to
Agent, for the benefit of itself, Issuer and Lenders, of the Account Receivable
arising with respect thereto;
(i) the Account Debtor with respect thereto is not a Related
Party of Borrower or a director, manager, officer, employee or agent of a
Company, a Related Party of Borrower or an Obligor, unless Borrower's decision
to extend credit to such Account Debtor is determined by the standards Borrower
employs to extend credit to Account Debtors that are not Related Parties and
such Account Receivable has terms no less favorable to Borrower than the
standard terms of Accounts Receivable owing by Account Debtors that are not
Related Parties;
(j) the Account Debtor with respect thereto is a resident or
citizen of, and is located within, the United States of America or the provinces
of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario or New Brunswick
of Canada, unless the Account Receivable is fully covered by a letter of credit,
banker's acceptance or other credit support terms reasonably satisfactory to
Agent;
(k) it is not an Account Receivable arising from a "sale on
approval," "sale or return" or "consignment," or subject to any other repurchase
or return agreement;
(l) it is not an Account Receivable with respect to which
possession and/or control of the goods sold giving rise thereto is held,
maintained or retained by Borrower, any Related Party of Borrower or any Obligor
(or by any agent or custodian of Borrower, any Related Party of Borrower or any
Obligor) for the account of or subject to further and/or future direction from
the Account Debtor thereof;
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<PAGE> 13
(m) it is not an Account Receivable which in any way fails to
meet or violates any warranty, representation or covenant in any material
respect contained in this Agreement or any Related Agreement relating directly
to Accounts Receivable;
(n) it arises in the ordinary course of Borrower's business;
(o) if the Account Debtor is the United States of America or
any state or local governmental entity, or any department, agency or
instrumentality thereof, Borrower has assigned its rights to payment of such
Account Receivable to Agent, for the benefit of itself, Issuer and Lenders,
pursuant to the Assignment of Claims Act of 1940, as amended, or pursuant to any
similar state or local law, regulation or requirement;
(p) it is not owing by any single Account Debtor whose
aggregate obligations to Borrower with respect to Accounts Receivable already
exceed twenty percent (20%) of all Accounts Receivable in the aggregate; and
(q) the Account Receivable is not evidenced by chattel paper
or an instrument.
"Eligible Inventory" means Inventory which meets the following
requirements:
(a) it is owned by Borrower and is not subject to any prior
assignment, claim or Lien, other than (i) a first priority Lien in favor of
Agent, for the benefit of itself, Issuer and Lenders, (ii) a Lien permitted
under SECTION 5.15, and (iii) Liens consented to by Requisite Lenders in
writing;
(b) it is (except as Agent may otherwise consent in writing)
new and unused and held for sale;
(c) except as provided in clause (d) below or as Agent may
otherwise consent, it is in the possession and control of Borrower or its
agents;
(d) if it is in the possession or control of a bailee,
warehouseman, processor, consignee or other Person other than Borrower, Agent is
in possession of such agreements, instruments and documents as Agent may
reasonably require (each in form and content reasonably acceptable to Agent and
duly executed, as appropriate, by the bailee, warehouseman, processor, consignee
or other Person in possession or control of such Inventory, as applicable), and
if Agent so requests warehouse receipts in Agent's name, for the benefit of
itself, Issuer and Lenders, covering such Inventory;
(e) it is not Inventory which is dedicated to, identifiable
with, or is otherwise specifically to be used in the manufacture of, goods which
are to be sold or leased to the United States of America or any department,
agency or instrumentality thereof and in respect of which Inventory Borrower
shall have received any progress or other advance payment which is or may be
against any Account Receivable generated upon the sale or lease of any such
goods;
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<PAGE> 14
(f) it is not Inventory produced in violation of the Fair
Labor Standards Act and subject to the "hot goods" provisions contained in Title
29 U.S.C. section 215 or any successor statute or section;
(g) it is not (i) packaging or shipping materials, (ii) goods
used in connection with maintenance or repair of Borrower's properties or assets
or (iii) general supplies;
(h) it is not Inventory which in any way fails to meet or
violates any warranty, representation or covenant in any material respect
contained in this Agreement or any Related Agreement relating directly to
Inventory;
(i) Agent has not determined in its reasonable discretion that
it is unacceptable due to age, type, category, quality and/or quantity; and
(j) it is not Inventory the use of which by Borrower or the
manufacture or sale thereof by Borrower, is subject to any licensing, patent,
royalty, trademark, tradename or copyright agreement of any other Person which
would materially adversely affect the ability of Agent to sell or otherwise
dispose of such Inventory during the continuance of any Event of Default.
"Environmental Laws" means the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree or other requirement
regulating, relating to, or imposing liability or standards of conduct
(including but not limited to permit requirements, and emission or effluent
restrictions) concerning any Hazardous Materials or any hazardous, toxic or
dangerous waste, substance or constituent, or any pollutant or contaminant or
other substance, whether solid, liquid or gas, as now or at any time hereafter
in effect.
"Environmental Lien" means a Lien in favor of any governmental
entity for (a) any liability under any Environmental Law or (b) damages arising
from or costs incurred by such governmental entity in response to a Release of
any Hazardous Material or the spillage, disposal or release into the environment
of any other hazardous, toxic or dangerous waste, substance or constituent, or
other substance.
"Equipment" means all equipment of Borrower of every
description, including without limitation fixtures, furniture, vehicles and
trade fixtures, together with any and all accessions, parts and equipment
attached thereto or used in connection therewith, and any substitutions therefor
and replacements thereof.
"Equity Interests" means warrants, options or other stock
purchase rights to acquire the Capital Stock of Borrower or Holdings, as the
case may be (but excluding any debt security which is convertible into or
exchangeable for, Common Stock of Borrower or Holdings, as the case may be).
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<PAGE> 15
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" means any corporation, partnership, or other
trade or business (whether or not incorporated) that is, along with a Company, a
member of a controlled group of corporations or a controlled group of trades or
businesses, as described in Sections 414(b) and 414(c), respectively, of the
Code or Section 4001 of ERISA, or a member of the same affiliated service group
within the meaning of Section 414(m) of the Code.
"Eurocurrency Reserve Requirement" means, with respect to any
LIBOR Rate Loan for any Interest Rate Period, a percentage equal to the daily
average during such Interest Rate Period of the percentages in effect on each
day of such Interest Rate Period, as prescribed by the Federal Reserve Board,
for determining the aggregate maximum reserve requirements (including all basic,
emergency, supplemental, marginal and other reserves) applicable to
"Eurocurrency liabilities" pursuant to Regulation D or any other then applicable
regulation of the Federal Reserve Board which prescribes reserve requirements
applicable to "Eurocurrency liabilities." Without limiting the effect of the
foregoing, the Eurocurrency Reserve Requirement shall reflect any other reserves
required to be maintained by Lenders against (i) any category of liabilities
that includes deposits by reference to which the LIBOR Rate is to be determined,
or (ii) any category of extensions of credit or other assets that includes LIBOR
Rate Loans. For purposes of this Agreement, any LIBOR Rate Loan hereunder shall
be deemed to be "Eurocurrency liabilities," as defined in Regulation D, and, as
such, shall be deemed to be subject to such reserve requirements without the
benefit of, or credit for, pro ration, exceptions or offsets which may be
available to any Lender from time to time under Regulation D.
"Event of Default" has the meaning ascribed to such term in
SECTION 6.1.
"Excess Availability" means , as of any date, (a) Revolving
Loan Availability as of such date; minus (b) the sum of (i) the amount of all
then outstanding unpaid Revolving Loans as of such date, plus (ii) the aggregate
amount of all then outstanding and unpaid Trade Accounts Payable of Borrower,
which are more than forty-five (45) days past due, plus (iii) any Taxes then
due.
"Excess Cash Flow" means, for any period, the sum of the
following, without duplication, determined for Borrower on a consolidated basis
in accordance with GAAP: (i) EBITDA for such period, minus (ii) interest and
Taxes paid in cash during such period, minus (iii) the aggregate amount of
Capital Expenditures of Borrower during such period to the extent such
expenditures are made and permitted to be made hereunder, minus (iv) principal
payments of the Term Loan made during such period, except to the extent such
payments are made as a result of the application of the payments described in
SECTION 2.1.3(a)(i), SECTION 5.6 or as a result of the disposition of any of
Borrower's assets, minus (v) principal payments made during such period in
respect of the Subordinated Debt, to the extent such payments are permitted
under the
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<PAGE> 16
Subordination Agreement and are not otherwise deducted from EBITDA, minus (vi)
all dividends and other payments by Borrower to Holdings permitted by SECTION
5.12 to the extent not deducted in determining net income of Borrower for such
period, plus (vii) decreases in Working Capital for such period, minus (viii)
increases in Working Capital for such period.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal, for each day during such period, to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Banking Day, for the next preceding Banking Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Banking Day, the average of the quotations for such day on
such transactions received by Agent from three federal funds brokers of
recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fiscal Year" means any period of twelve (12) consecutive
calendar months ending on December 31. References to a Fiscal Year with a number
corresponding to any calendar year (e.g. "Fiscal Year 1996") refer to the Fiscal
Year ending on the thirty-first (31st) day of December occurring during such
calendar year.
"Fixed Charge Coverage" means, for any period, the ratio of
(a) EBITDA for such period, to (b) the sum of Taxes paid in cash by Borrower
during such period, plus interest paid in cash by Borrower during such period,
plus payments made by Borrower under the Tax Sharing Agreement during such
period, plus principal in respect of Indebtedness of Borrower scheduled to be
paid during such period; provided, that for any period ending on or prior to
September 30, 1997, the amount of Taxes and interest paid in cash and payments
made under the Tax Sharing Agreement during such period shall mean the amount
the Taxes and interest paid in cash and payments made under the Tax Sharing
Agreement from the Closing Date through the end of such period as annualized for
a twelve (12) month period.
"Fixtures" means all fixtures of Borrower of every description
and all substitutions and replacements of any thereof.
"Floating Rate" means, at anytime, a rate per annum equal to
the sum of the Reference Rate at such time plus the Applicable Floating Margin
at such time.
"Floating Rate Loan" means any portion of the Revolving Loans
or the Term Loan which bears interest at a rate determined with reference to the
Floating Rate.
"Funded Debt" means the aggregate outstanding amount of all
interest-bearing Indebtedness of Borrower, determined on a consolidated basis in
accordance with GAAP, including without limitation all Loans.
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<PAGE> 17
"FX Trading Office" means the Foreign Exchange Trading Center,
Chicago, Illinois, of BA, or such other of BA's offices as Agent may designate
from time to time.
"GAAP" means generally accepted accounting principles as in
effect from time to time (except as otherwise provided in SECTION 1.4), as
applied in the preparation of the audited financial statements referred to in
SECTION 4.6.
"General Intangibles" means all general intangibles now owned
or hereafter acquired by Borrower, including without limitation all right, title
and interest of Borrower, in and to: (a) all tax refunds and tax refund claims;
(b) registered and unregistered patents, trademarks, service marks, copyrights,
tradenames, applications for any of the foregoing; (c) all trade secrets and
other confidential information relating to the business of Borrower; and (d) all
rights and remedies under the Acquisition Documents.
"Hazardous Materials" means any toxic substance, hazardous
substance, hazardous material, hazardous chemical or hazardous waste defined or
qualifying as such in (or for the purposes of) any Environmental Law, or any
pollutant or contaminant, or any hazardous, toxic or dangerous waste, substance
or constituent, and shall include, but not be limited petroleum, including crude
oil, any radioactive material, including but not limited to any source, special
nuclear or by-product material as defined at 42 U.S.C. Section 2011 ET SEQ., as
amended or hereafter amended, polychlorinated biphenyls and asbestos in any form
or condition.
"Holdings" means Unifrax Holding Co., a Delaware corporation.
"Indebtedness" of any Person means, without duplication, (a)
any obligation of such Person for borrowed money, including without limitation
(i) any obligation of such Person evidenced by bonds, debentures, notes or other
similar debt instruments and (ii) any obligation for borrowed money which is
non-recourse to the credit of such Person but which is secured by a Lien on any
asset of such Person, (b) any obligation of such Person on account of deposits
or advances, (c) any obligation of such Person for the deferred purchase price
of any property or services, except Trade Accounts Payable, (d) any obligation
of such Person as lessee under a Capitalized Lease, (e) any obligation of such
Person with respect to interest rate swaps, interest rate caps, interest rate
collars or other interest hedging agreements, (f) any obligation of such Person
in respect of foreign exchange contracts, (g) any obligation of such Person with
respect to letters of credit, acceptances, guarantees or similar obligations of
another Person issued for the account of such Person, and (h) any Indebtedness
of another Person secured by a Lien on any asset of such first Person, whether
or not such Indebtedness is assumed by such first Person. For all purposes of
this Agreement, the Indebtedness of any Person shall include the Indebtedness of
any partnership in which such Person is a general partner or any joint venture
to the extent such Person is personally liable for the Indebtedness of such
joint venture.
"Interest Coverage" means, for any period, the ratio of (a)
EBITDA for such period, to (b) interest paid in cash by Borrower during such
period; provided, that for any period ending on or prior to September 30, 1997,
the amount of interest paid in cash during such period shall mean
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<PAGE> 18
the amount of interest paid in cash from the Closing Date through the end of
such period as annualized for a twelve (12) month period.
"Interest Rate Period" means with respect to any portion of
the Revolving Loan or Term Loan which is to bear interest at a rate determined
with reference to the LIBOR Rate, the period commencing on the date on which the
LIBOR Rate is deemed applicable to such portion of the Loan and ending on the
numerically corresponding day one (1), two (2), three (3), four (4) or six (6)
months thereafter; provided, however, that:
(a) any Interest Rate Period which would otherwise end on a
day which is not a Banking Day shall end on the next succeeding Banking Day
unless such next succeeding Banking Day falls in another calendar month, in
which case such Interest Rate Period shall end on the next preceding Banking
Day;
(b) any Interest Rate Period which begins on the last Banking
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Rate Period)
shall end on the last Banking Day of the calendar month at the end of such
Interest Rate Period; and
(c) no Interest Rate Period shall extend beyond the
Termination Date.
"Inventory" means any and all of Borrower's goods (including
without limitation goods in transit) wheresoever located, which are held for
sale, furnished under any contract of service, or held as raw materials, work in
process, or supplies or materials used or consumed in Borrower's business, or
which are held for use in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, and any and all goods the sale
or other disposition of which has given rise to an Account Receivable or any
other property described in SECTION 3.1(a), which are returned to and/or
repossessed and/or stopped in transit by, or at any time hereafter are in the
possession or under the control of, Borrower, Agent or any Lender or any agent
or bailee of any of them, and all documents of title or other documents
representing the same.
"Investment" of any Person means any investment, made in cash
or by delivery of any kind of property or asset, in any other Person, whether by
acquisition of shares of stock or similar interest, Indebtedness or other
obligation or security, or by loan, advance or capital contribution, or
otherwise.
"Issuer" means BAI, any Related Party of BAI, or any other
Lender reasonably acceptable to Agent to issue Letters of Credit under this
Agreement upon the Application of Borrower.
"L/C Draft" means a draft drawn on Issuer pursuant to a Letter
of Credit.
"Lenders" means, collectively, BAI, NCB and any other Person
that becomes a Lender under this Agreement and each of their respective
successors and assigns as provided in this Agreement; and "Lender" means any one
of Lenders.
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<PAGE> 19
"Letter of Credit" means a standby or commercial letter of
credit issued by Issuer on the Application of Borrower.
"Letter of Credit Obligations" means, at any time, an amount
equal to the sum of, without duplication, (a) the aggregate outstanding face
amount of all Letters of Credit, plus (b) the aggregate outstanding face amount
of all accepted but unpaid L/C Drafts, plus (c) the unreimbursed amount of any
payment by Issuer in respect of any L/C Draft.
"Leverage Ratio" means, as of the last day of any calendar
quarter, the ratio of (a) Funded Debt as of such date less cash and Cash
Equivalent Investments of Borrower as of such date, to (b) EBITDA for the twelve
(12) month period ending on such date.
"Liabilities" means all of the liabilities, obligations
(including obligations of performance) and indebtedness of Borrower to Agent or
any Lender of any kind or nature, however created, arising or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter existing or due or
to become due, and arising under, or in connection with, this Agreement, any
Note, any Related Agreement (including without limitation any Application or
Letter of Credit with respect thereto), including without limitation all
interest, charges, reasonable expenses, Attorneys' Fees and other sums
chargeable to Borrower by Agent or any Lender hereunder or thereunder.
"Liabilities" shall also include any and all amendments, extensions, renewals of
any of the foregoing.
"LIBOR Base Rate" means, with respect to each Interest Rate
Period for a LIBOR Rate Loan, the rate per annum at which deposits in the
Applicable Currency are offered to the LIBOR Office of BAI two (2) Banking Days
prior to the beginning of such Interest Rate Period by major banks in the London
interbank eurodollar market as at or about the relevant local time of such LIBOR
Office, for delivery on the first day of such Interest Rate Period, for the
number of days comprised therein and in an amount equal to the amount of the
LIBOR Rate Loan to be outstanding during such Interest Rate Period. As used
herein, "relevant local time" as to any LIBOR Office means 11:00 a.m., London
time, when such LIBOR Office is located in Europe or the Middle East, and 10:00
a.m., Chicago time, when such LIBOR Office is located in North America or the
Caribbean.
"LIBOR Office" means with respect to any Lender the office or
offices reasonably selected by such Lender which shall be making or maintaining
the LIBOR Rate Loans of such Lender hereunder or such other office or offices
reasonably selected by such Lender through which such Lender determines its
LIBOR Base Rate. A LIBOR Office of any Lender may be, at the option of such
Lender, either a domestic or foreign office.
"LIBOR Rate" means, with respect to each Interest Rate Period
for a LIBOR Rate Loan, a rate per annum (rounded upward, if necessary, to the
nearest one hundredth of one percent (1/100th of 1%)) determined pursuant to the
following formula:
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LIBOR Rate = LIBOR Base Rate + Applicable LIBOR Margin
---------------------------------
1-Eurocurrency Reserve Requirement
"LIBOR Rate Loan" means any portion of the Revolving Loans or
Term Loan which bears interest at a rate determined with reference to the LIBOR
Rate, and may be an Offshore Currency Loan or a Loan denominated in Dollars.
"Lien" means any security interest, mortgage, pledge,
hypothecation, judgment lien or similar legal process, title retention lien, or
other lien or encumbrance, including without limitation the interest of a vendor
under any conditional sale or other title retention agreement and the interest
of a lessor under any Capitalized Lease, but excluding operating leases for
purposes of GAAP not intended to create a security interest.
"Loan" means (a) any Revolving Loan made pursuant to SECTION
2.1.1, (b) the Term Loan made pursuant to SECTION 2.1.2 and (c) any other loan
or advance made to Borrower by Agent or any Lender under or pursuant to this
Agreement.
"Loan Account" has the meaning ascribed to such term in
SECTION 2.3.
"Margin Stock" has the meaning ascribed to such term in
Regulation U of the Federal Reserve Board or any regulation substituted
therefor, as in effect from time to time.
"Material Adverse Change" means (a) a material adverse change
in the condition (financial or otherwise), operations or properties, of
Borrower, (b) an impairment of Agent's interest, for the benefit of itself,
Issuer and Lenders, in any material portion of the Collateral or the material
diminution in value of the Collateral taken as a whole, or (c) the prospect of
payment or performance of any material obligation or material agreement of
Borrower or any other Obligor hereunder or under any Related Agreement is
materially impaired.
"Material Adverse Effect" means (a) a material adverse effect
upon the condition (financial or otherwise), operations or properties, of
Borrower, (b) an impairment of Agent's interest, for the benefit of itself,
Issuer and Lenders, in any material portion of the Collateral or the material
diminution in value of the Collateral taken as a whole, or (c) the prospect of
payment or performance of any material obligation or material agreement of
Borrower or any other Obligor hereunder or under any Related Agreement is
materially impaired.
"Maximum Facility Amount" has the meaning ascribed to such
term in SECTION 2.1.5.
"Maximum Loan Amount" means, with respect to any Lender, the
maximum amount of Loans which such Lender has agreed, pursuant to the terms and
conditions of this Agreement, to make available to Borrower, as set forth on the
signature page hereto or in an Assignment and Acceptance Agreement executed by
such Lender.
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"Maximum Revolving Loan Amount" means, with respect to any
Lender, the maximum amount of Revolving Loans which such Lender has agreed,
pursuant to the terms and conditions of this Agreement, to make available to
Borrower, as set forth on the signature page hereto or in an Assignment and
Acceptance Agreement executed by such Lender.
"Maximum Term Loan Amount" means, with respect to any Lender,
the maximum amount of the Term Loan which such Lender has agreed to make
available to Borrower, as set forth on the signature page hereto or in an
Assignment and Acceptance Agreement executed by such Lender.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA that is maintained for employees of Borrower or
any ERISA Affiliate.
"Net Worth" means, at any time, the consolidated assets of
Borrower and its Subsidiaries at such time, less the consolidated liabilities of
Borrower and its Subsidiaries at such time, each as determined in accordance
with GAAP.
"NCB" has the meaning ascribed to such term in the Preamble.
"Note" means any promissory note of Borrower evidencing any
loan or advance made by any Lender to Borrower pursuant to this Agreement, as
the same may be amended, modified or supplemented from time to time.
"Obligor" means Borrower and each other Person who is or shall
become primarily or secondarily liable on any of the Liabilities, or who grants
to Agent, for the benefit of itself, Issuer and Lenders, a Lien on any property
of such Person as security for any of the Liabilities.
"Occupational Safety and Health Law" means the Occupational
Safety and Health Act of 1970 and any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning employee health and/or
safety which is applicable to any Company.
"Offshore Currency" means Deutche Marks or Reals.
"Offshore Currency Loan" means any LIBOR Rate Loan denominated
in an Offshore Currency.
"Over Advance" has the meaning ascribed to such term in
SECTION 2.8.
"Overdraft Loan" has the meaning ascribed to such term in
SECTION 2.7.
"Participant" means any Person, now or at any time or times
hereafter, participating with any Lender, pursuant to the provisions of SECTION
11.9, in the Loans made or Letters of Credit issued, pursuant to this Agreement
or any Related Agreement.
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"Payment Liabilities" means all Liabilities other than (i)
contingent obligations of Borrower with respect to which neither Agent nor any
Lender has asserted a claim against Borrower, and (ii) non-monetary obligations
of performance; provided, that Payment Liabilities shall include the Letter of
Credit Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan," as such term is defined
in Section 3(2) of ERISA, that is subject to the provisions of Title IV of ERISA
(other than a Multiemployer Plan) that is maintained for employees of Borrower
or any ERISA Affiliate.
"Permitted Acquisition" means any acquisition after December
31, 1997 by Borrower or any Subsidiary formed by Borrower for such purpose (a
"New Subsidiary"), by any means, of all or substantially all of the assets or
capital stock of any Person that is a going concern and that is in a similar or
related field of business as Borrower as of the date hereof (including
reasonable extensions of such business operations), that satisfies the following
conditions:
(a) no Event of Default or Unmatured Event of Default is in
existence at the time of such acquisition or would be caused thereby after
giving effect thereto;
(b) total consideration for all such acquisitions (including
without limitation cash purchase price, liabilities assumed, deferred or
financed purchase price and purchase price characterized as consulting
agreements, noncompetition payments and the like), does not exceed the sum of
Two Million Dollars ($2,000,000) and the aggregate amount of Excess Cash Flow of
Borrower for each Fiscal Year ending on or after December 31, 1997 not applied
to the principal balance of the Term Loan pursuant to SECTION 2.1.3(a)(i);
provided, that total consideration for all such acquisitions in any Fiscal Year
shall not exceed Two Million Dollars ($2,000,000);
(c) Agent has received at least ten (10) days' prior written
notice thereof and, as soon as available, copies of all agreements delivered in
connection therewith;
(d) if a New Subsidiary is formed, Agent has obtained a Lien
on such New Subsidiary's stock and assets; and
(e) Agent has received a certificate from Borrower's chief
executive officer, president or chief financial officer certifying that all of
the applicable conditions contained herein to treating such acquisition as a
Permitted Acquisition have been satisfied.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, limited
liability company, association, corporation, institution, entity, or government
(whether national, federal, state, county, city, municipal or otherwise,
including without limitation any instrumentality, division, agency, body or
department thereof).
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"Pre-Settlement Determination Date" has the meaning ascribed
to such term in SECTION 2.14.
"Pro Rata Share" means, with respect to any Lender, a fraction
(expressed as a percentage in nine (9) decimal places), the numerator of which
shall be the Maximum Loan Amount of such Lender and the denominator of which
shall be the aggregate amount of the Maximum Loan Amounts of all Lenders.
"Recapitalization Agreement" means that certain
Recapitalization Agreement dated as of _____________, 1996 among Sellers,
Borrower, Unifrax Investment and Holdings.
"Reference Rate" means, at any time, the rate of interest then
most recently announced by BAI at Chicago, Illinois as its reference rate. Each
change in the interest rate on any Loan (other than a LIBOR Rate Loan) shall
take effect on the effective date of the change in the Reference Rate.
"Register" has the meaning ascribed to such term in SECTION
11.9(d).
"Related Agreement" means any agreement, instrument or
document (including without limitation notes, guarantees, chattel mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements, subordination agreements,
intercreditor agreements, trust account agreements and all other written matter)
heretofore, now, or hereafter delivered to Agent or any Lender with respect to
or in connection with or pursuant to this Agreement or any of the Liabilities,
and executed by or on behalf of a Company or any other Obligor, as each of the
same may be amended, modified or supplemented from time to time and shall
specifically include any Notes.
"Related Party" means, with respect to any Person, any other
Person (a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such first
Person or a subsidiary of such first Person, (b) that beneficially owns or holds
ten percent (10%) or more of the equity interest of such first Person or a
subsidiary of such first Person or (c) ten percent (10%) or more of the equity
interest of which is beneficially owned or held by such first Person or a
subsidiary of such first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Release" means any actual or threatened spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of Hazardous Materials into the environment.
"Reportable Event" has the meaning given to such term in
ERISA.
"Requisite Lenders" means Lenders having, in the aggregate,
Pro Rata Shares of at least fifty-one percent (51%).
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"Revolving Credit" has the meaning ascribed to such term in
the definition of "Credit."
"Revolving Credit Amount" means the maximum amount of
Revolving Loans which Lenders will make available to Borrower, which amount is
equal to Twenty Million Dollars ($20,000,000).
"Revolving Loan" has the meaning ascribed to such term in
SECTION 2.1.1.
"Revolving Loan Availability" means the lesser of (a) the
Revolving Credit Amount minus the Letter of Credit Obligations and (b) the
Borrowing Base (as calculated pursuant to the most recent Borrowing Base
Certificate delivered pursuant to this Agreement) minus the Letter of Credit
Obligations.
"Same Day Funds" means (i) with respect to disbursements and
payments in Dollars, immediately available funds, and (ii) with respect to
disbursements and payments in an Offshore Currency, same day or other funds as
may be determined by the Agent to be customary in the place of disbursement or
payment for the settlement of international banking transactions in the relevant
Offshore Currency.
"Sellers" mean BP America Inc., a Delaware corporation, The
Standard Oil Company, an Ohio corporation, and BPX.
"Seller Subordinated Debt" means obligations of Borrower to
BPX in respect of the Subordinated Promissory Note.
"Senior Notes" means Borrower's ________ percent (___%) Senior
Notes due 2003, in aggregate principal amount limited to One Hundred Million
Dollars ($100,000,000), issued or to be issued in connection with the
Acquisition, as the same may be amended, modified, supplemented, renewed or
refinanced from time to time.
"Senior Note Documents" means the Indenture dated as of
October __, 1996 between Borrower (as successor in interest to Unifrax
Investment) and ____________________, as Trustee, as the same may be amended,
modified or supplemented from time to time.
"Settlement Date" has the meaning ascribed to such term in
SECTION 2.14.
"Spot Rate" for a currency means the rate quoted by BA as the
spot rate for the purchase by BA of such currency with another currency through
its FX Trading Office at approximately 10:30 a.m. (Chicago time) on the date two
(2) Banking Days prior to the date as of which the foreign exchange computation
is made.
"Subordinated Debt" means, collectively, that portion of any
liabilities, obligations or Indebtedness of Borrower which contains terms
satisfactory to Requisite Lenders and is subordinated, in a manner satisfactory
to Requisite Lenders (as evidenced by Requisite Lenders'
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written agreement of satisfaction), as to right and time of payment of principal
and interest thereon, to all of the Liabilities and shall include, without
limitation, the Seller Subordinated Debt.
"Subordinated Promissory Note" means the Subordinated
Promissory Note of even date herewith in the original principal amount of Seven
Million Dollars ($7,000,000), issued by Borrower to BPX.
"Subordination Agreement" means the Subordination Agreement of
even date herewith between BPX, Agent and the trustee under the Senior Note
Documents.
"Subsidiary" means any Person of which or in which a Company
and its other Subsidiaries own directly or indirectly more than fifty percent
(50%) of (a) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the board of
directors of such Person, if it is a corporation, (b) the membership interests,
the capital interest or profits interest of such Person, if it is a limited
liability company, partnership, joint venture or similar entity or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"Supplemental Documentation" has the meaning ascribed to such
term in SECTION 3.5.
"Taxes" with respect to any Person means taxes, assessments or
other governmental charges or levies imposed upon such Person, its income or any
of its properties, franchises or assets.
"Tax Sharing Agreement" means the Tax Sharing Agreement of
even date herewith between Borrower and Holdings as such Tax Sharing Agreement
is in effect on the Closing Date and as the same may be amended pursuant to any
amendment, alteration, modification or waiver thereto that is not materially
adverse to the interests of Borrower or Lenders.
"Term Credit" has the meaning ascribed to such term in the
definition of the term "Credit".
"Termination Date" means September 28, 2001.
"Term Loan" means the Term Loan referred to in SECTION 2.1.2.
"Trade Accounts Payable" of any Person means trade accounts
payable of such Person incurred in the ordinary course of such Person's business
and having payment terms materially consistent with past practices of such
Person.
"UCC" means the Uniform Commercial Code as in effect in the
State of Illinois, and any successor statute, together with any regulations
thereunder, in each case as in effect from time to time. References to sections
of the UCC shall be construed to also refer to any successor sections.
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"Unifrax Investment" means Unifrax Investment Corp., a
Delaware corporation.
"Unmatured Event of Default" means any event or condition
which, with the lapse of time or giving of notice to Borrower, would constitute
an Event of Default.
"Working Capital" means the consolidated current assets of
Borrower and its Subsidiaries minus the consolidated current liabilities of
Borrower and its Subsidiaries, each as determined in accordance with GAAP,
excluding cash, Cash Equivalent Investments, the principal balance of the
Revolving Loan and current maturities of long-term Indebtedness.
"XPE GmbH" means XPE Vertriebs GmbH, a limited liability
company incorporated in Germany.
"XPE Ltda." means NAF Brasil Ltda., a company incorporated in
Brazil.
1.2. Other Definitional Provisions.
------------------------------
Unless otherwise defined or the context otherwise requires,
all financial and accounting terms used herein or in any certificate or other
document made or delivered pursuant hereto shall be defined in accordance with
GAAP. If any changes in accounting principles from those used in the preparation
of the financial statements referred to in SECTION 4.6 hereafter occur as a
result of the promulgation of rules, regulations, pronouncements, or opinions by
the Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions)
and result in a change in the method of calculation of financial covenants,
standards, or terms found in this Agreement, upon the request of Borrower or the
Requisite Lenders, Borrower, Agent and Requisite Lenders agree to enter into
negotiations to amend such financial covenants, standards or terms so as to
equitably reflect such changes with the desired result that the evaluations of
the Borrower's financial condition shall be the same after such changes as if
such changes had not been made; provided, however, that until Borrower, Agent
and Requisite Lenders have reached a definitive agreement on such amendments,
Borrower's financial condition shall continue to be evaluated on the same
principles as those used in the preparation of the financial statements referred
to in SECTION 4.6 prior to such change in accounting principles.
Unless otherwise defined therein, all terms defined in this
Agreement shall have the defined meanings when used in any Related Agreement or
Supplemental Documentation. Terms used in this Agreement which are defined in
any SCHEDULE or EXHIBIT hereto shall, unless the context otherwise indicates,
have the meanings given them in such SCHEDULE or EXHIBIT. Other terms used in
this Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
1.3. Interpretation of Agreement.
----------------------------
A SECTION, an EXHIBIT or a SCHEDULE is, unless otherwise
stated, a reference to a section hereof, an exhibit hereto or a schedule hereto,
as the case may be. Section captions used in
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this Agreement are for convenience only and shall not affect the construction of
this Agreement. The words "hereof," "herein," "hereto" and "hereunder" and words
of similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement.
1.4. Compliance with Financial Restrictions.
---------------------------------------
Compliance with each of the financial ratios and restrictions
contained in SECTION 5 shall, except as otherwise provided herein, be determined
in accordance with GAAP, consistently followed, subject to SECTION 1.2.
1.5. Currency Equivalents Generally.
-------------------------------
For all purposes of this Agreement (but not for purposes of
the preparation of any financial statements delivered pursuant hereto), the
equivalent in any Offshore Currency or other currency of an amount in Dollars,
and the equivalent in Dollars of an amount in any Offshore Currency or other
currency, shall be determined at the Spot Rate.
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.
2.1. Loans.
------
2.1.1. Revolving Loans.
----------------
(a) Subject to the terms and conditions of this Agreement and
in reliance upon the warranties and representations of Borrower set forth herein
and the warranties and representations of each other Obligor set forth in the
Related Agreements, each Lender, severally and not jointly, agrees to make its
Pro Rata Share of such loans or advances (individually each a "Revolving Loan"
and collectively the "Revolving Loans") from time to time before the Termination
Date to Borrower as Borrower may from time to time request; provided, that Agent
may, but shall not be obligated to, make such Revolving Loans to Borrower on
behalf of Lenders as a Disproportionate Advance as provided below; provided,
further, that, except as provided in SECTION 2.8, the aggregate Dollar
Equivalent of the outstanding principal amount of the Revolving Loans shall not
at any time exceed Revolving Loan Availability. Revolving Loans made by or on
behalf of Lenders may be repaid and, subject to the terms and conditions hereof,
reborrowed to but not including the Termination Date unless the Credit extended
under this Agreement is otherwise terminated as provided in this Agreement. No
Lender shall be obligated at any time to make available to Borrower its Pro Rata
Share of any requested Revolving Loan if such amount, plus its Pro Rata Share of
all Revolving Loans then outstanding to Borrower, would exceed such Lender's
Maximum Revolving Loan Amount.
No Lender shall be obligated to make available its Pro Rata
Share of any Revolving Loans during the occurrence and continuance of any Event
of Default or Unmatured Event of Default; provided, that notwithstanding the
foregoing or anything contained herein to the contrary, regardless of whether an
Event of Default or an Unmatured Event of Default exists and is
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continuing, each Lender shall, at the request of Agent, continue to be obligated
to make its Pro Rata Share of the Revolving Loans available to Borrower for a
period of up to five (5) Banking Days, but in any event, no Lender shall be
obligated at any time to make available to Borrower its Pro Rata Share of any
such requested Revolving Loan if such amount, plus its Pro Rata Share of all
Revolving Loans then outstanding would exceed such Lender's Maximum Revolving
Loan Amount. Neither Agent nor any Lender shall be responsible for any failure
by any other Lender to perform its obligations to make advances hereunder, and
the failure of any Lender to make its Pro Rata Share of any advance hereunder
shall not relieve any other Lender of its obligation, if any, to make its Pro
Rata Share of Loans hereunder, nor require such other Lender to make more than
its Pro Rata Share of any Loans hereunder.
If Borrower makes a request for a Revolving Loan pursuant to
the terms hereof, Agent shall notify each Lender by telecopy or other similar
form of teletransmission of the proposed advance (A) on the same day Agent is
notified by Borrower of Borrower's request for an advance hereunder if such
notice is received by Agent by 10:00 a.m., Chicago time on such day or (B) on
the next Banking Day following the day Agent is notified by Borrower of
Borrower's request for an advance hereunder if such notice is received by Agent
after 10:00 a.m. Chicago time, on such day. Each Lender will make the amount of
its Pro Rata Share of each proposed advance available to Agent for the account
of Borrower in Same Day Funds and in the Applicable Currency (x) in the case of
a proposed advance comprised of Loans in Dollars, by 12:00 noon (Chicago time)
on the day requested (y) in the case of a proposed advance in an Offshore
Currency, by such time on such day as the Agent may specify. Agent shall
promptly remit to Borrower such Same Day Funds received from a Lender.
Notwithstanding the foregoing, if Borrower makes a request as
provided herein for a Revolving Loan that will constitute a Floating Rate Loan,
or if Agent makes a Revolving Loan pursuant to any other provision of this
Agreement or any Related Agreement, Agent may, in its sole discretion, in lieu
of the immediately preceding paragraph, elect to advance the amount of the
proposed Revolving Loan to Borrower disproportionately (a "Disproportionate
Advance") out of Agent's own funds on behalf of Lenders, and request settlement
in accordance with SECTION 2.14, such that upon such settlement, each Lender's
share of the outstanding Revolving Loans to Borrower (including, without
limitation, the amount of any Disproportionate Advance) equals its Pro Rata
Share and such Disproportionate Advance shall be deemed to be repaid. If and to
the extent that a Lender does not settle with Agent as required above, Borrower
agrees to repay to Agent forthwith on demand such amount required to be paid by
such Lender to Agent, together with interest thereon, for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to Agent, at the interest rate applicable at such time for such Revolving Loans;
provided, that Borrower's obligation to repay such advance to Agent shall not
relieve any Lender of its liability to Agent or Borrower for failure to settle
as provided above.
(b) In the event the aggregate Dollar Equivalent of the
outstanding principal balance of the Revolving Loans exceeds Revolving Loan
Availability, Borrower shall, unless Agent permits such Over Advance as provided
in SECTION 2.8 or Requisite Lenders shall otherwise
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consent, within one (1) Banking Day of written notice from Agent, make such
repayments of the Revolving Loans or take such other actions as shall be
necessary to eliminate such excess.
(c) All Revolving Loans hereunder shall be paid by Borrower on
the Termination Date, unless payable sooner pursuant to the provisions of this
Agreement, but may, at Borrower's election, be repaid in whole or in part at any
time prior to such date without premium or penalty (other than as expressly
provided in SECTION 2.4.5 with respect to LIBOR Rate Loans repaid prior to the
end of the applicable Interest Rate Period).
2.1.2. Term Loan.
----------
(a) Subject to the terms and conditions of this Agreement and
in reliance upon the warranties and representations of Borrower set forth herein
and the warranties and representations of each other Obligor set forth in the
Related Agreements, each Lender, severally and not jointly, agrees to make its
Pro Rata Share of a loan (the "Term Loan") to Borrower on the Closing Date in
the amount of Twenty-Five Million Dollars ($25,000,000).
(b) Unless otherwise required to be sooner paid pursuant to
SECTION 2.1.3 or any other provision of this Agreement, the principal balance of
the Term Loan shall be repaid in fifteen (15) consecutive installments, on the
last day of each calendar quarter as follows: (i) four (4) installments each in
the amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000)
commencing December 31, 1997 and ending September 30, 1998; (ii) four (4)
installments each in the amount of Five Hundred Thousand Dollars ($500,000)
commencing December 31, 1998 and ending September 30, 1999; and (iii) seven (7)
installments each in the amount of Two Million Two Hundred Fifty Thousand
Dollars ($2,250,000) commencing December 31, 1999 and ending June 30, 2001;
together with a final installment of the unpaid principal balance of the Term
Loan on September 28, 2001.
2.1.3. Prepayments of the Loans.
-------------------------
(a) MANDATORY PREPAYMENTS.
(i) EXCESS CASH FLOW. In addition to the other payments
required hereunder, within one hundred (100) days after the end of each
Fiscal Year (commencing with Fiscal Year 1997), Borrower shall make a
mandatory prepayment of the Term Loan in an amount equal to fifty
percent (50%) of Borrower's Excess Cash Flow for such Fiscal Year. Such
mandatory prepayment shall be applied to the unpaid installments of the
Term Loan in the inverse order of their maturities; provided, that the
mandatory prepayment in respect of Borrower's Excess Cash Flow for
Fiscal Year 1997 shall be applied to the unpaid installments of the
Term Loan due March 31, 1998, June 30, 1998, September 30, 1998 and
December 31, 1998 in the inverse order of their maturities.
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(ii) TERMINATION DATE. Notwithstanding any other provision of
this Agreement, if not theretofore paid in full, the outstanding
principal balance of the Term Loan shall be due and payable in full on
the Termination Date.
(b) VOLUNTARY PREPAYMENTS OF THE TERM LOAN. Borrower may on
any Banking Day, prepay the principal of the Term Loan in whole or in part
without any premium or penalty (other than as expressly provided in SECTION
2.4.5 with respect to LIBOR Rate Loans repaid prior to the end of the applicable
Interest Rate Period); provided, however, that a prepayment of the Term Loan may
be made with the proceeds of a Revolving Loan only if, immediately before and
after giving effect to such prepayment, no Event of Default or Unmatured Event
of Default then exists and is continuing or would result therefrom. Any partial
prepayment of principal shall be in a minimum amount equal to the lesser of (i)
the outstanding principal balance of the Term Loan and (ii) Two Hundred Fifty
Thousand Dollars ($250,000) or an integral multiple thereof, and shall be
applied to the unpaid installments of the Term Loan in the inverse order of
their maturities; provided, that any voluntary prepayment in Fiscal Year 1997
shall be applied to the unpaid installments of the Term Loan due March 31, 1998,
June 30, 1998, September 30, 1998 and December 31, 1998 in the inverse order of
their maturities. Any principal of the Term Loan which is repaid may not be
reborrowed as a Term Loan.
2.1.4. Prepayment of all Liabilities; Reduction of Revolving
-----------------------------------------------------
Credit Amount.
--------------
Upon three (3) Banking Days prior written notice to Agent,
Borrower may prepay all of the Loans and Letter of Credit Obligations in full at
any time, without premium or penalty (other than as expressly provided in
SECTION 2.4.5 with respect to LIBOR Rate Loans repaid prior to the end of the
applicable Interest Rate Period), by prepaying the outstanding principal balance
of the Revolving Loans and the Term Loan, together with (a) all accrued and
unpaid interest on the Payment Liabilities and (b) all other outstanding Payment
Liabilities. Borrower may permanently reduce the Revolving Credit Amount in
increments of Two Hundred Fifty Thousand Dollars ($250,000).
2.1.5. Maximum Outstanding Liabilities.
--------------------------------
Notwithstanding any other provision of this Agreement, (i) the
aggregate Dollar Equivalent of the outstanding principal balance of the Loans
plus the Letter of Credit Obligations shall not exceed Forty-Five Million
Dollars ($45,000,000) (the "Maximum Facility Amount"); (ii) the aggregate Dollar
Equivalent of the outstanding principal balance of the Term Loan shall not
exceed Twenty-Five Million Dollars ($25,000,000); and (iii) the aggregate Dollar
Equivalent of the principal balance of the Revolving Loans plus the Letter of
Credit Obligations shall not exceed Twenty Million Dollars ($20,000,000);
provided, however, that the foregoing shall not limit the right of Agent or
Lenders to advance Revolving Loans to Borrower pursuant to any other provision
of this Agreement or any Related Agreement that permits Agent or Lenders to
advance Revolving Loans to Borrower. Any Revolving Loan advanced by Agent to
Borrower under any of the foregoing provisions shall be deemed to be a Revolving
Loan made by Agent on behalf of Lenders to Borrower.
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<PAGE> 31
2.2. Letters of Credit.
------------------
(a) In addition to Loans made pursuant to SECTION 2.1, Agent
will, upon receipt of duly executed Applications and such other documents,
instruments and/or agreements as Issuer or Agent may reasonably require,
request, on Borrower's behalf, that Issuer issue Letters of Credit for the
account of Borrower on such terms as are reasonably satisfactory to Agent and
Issuer, PROVIDED, HOWEVER that no Letter of Credit will be issued if, after
taking such Letter of Credit into account, the Dollar Equivalent of the Letter
of Credit Obligations exceed the least of (A) Five Million Dollars ($5,000,000),
(B) the Revolving Credit Amount minus the outstanding principal balance of the
Revolving Loans and (C) the Borrowing Base minus the outstanding principal
balance of the Revolving Loans. If such excess shall at any time exist, Borrower
shall, unless Requisite Lenders shall otherwise consent, promptly make such
payments as are necessary to eliminate such excess or shall promptly post cash
Collateral in the amount of such excess. No Letter of Credit shall be used to
support worker's compensation obligations if the aggregate amount of such
Letters of Credit exceeds One Million Dollars ($1,000,000) or have a tenor of
more than one year from the issue date thereof or an expiry date after the
thirtieth (30th) day prior to the Termination Date.
(b) Borrower agrees to pay to Issuer, on demand, Issuer's
standard issuance, amendment, negotiation and administrative operating fees and
charges in effect from time to time for issuing and administering any Letters of
Credit on Borrower's Application and if not so paid, each Lender shall, without
regard to any other provision of this Agreement or any other Related Agreement,
any defense that Borrower may have to its obligation to pay Issuer in connection
with such fees and charges or any defense that any Lender may have in connection
with the participation described in SECTION 2.2(e) in connection with any Letter
of Credit or L/C Draft, pay Issuer for such Lender's Pro Rata Share of such fees
and charges, and any payments so made by Lenders to Issuer shall be deemed to be
Revolving Loans to Borrower. Each Lender (other than a Lender that is Issuer)
acknowledges and agrees that it shall not be entitled to any of the fees and
charges of Issuer. Borrower further agrees to pay Agent, for the benefit of
Lenders, a per annum commission equal to the Applicable LIBOR Margin then in
effect for Revolving Loans (calculated on the basis of a year consisting of
three hundred sixty (360) days and paid for actual days elapsed) of the daily
average of the undrawn amount of each Letter of Credit issued on Borrower's
Application and on each L/C Draft accepted in connection therewith. Such Letter
of Credit commissions shall be paid in arrears on the first day of each calendar
quarter, commencing January 1, 1997. Upon at least two (2) Banking Days' advance
notice to Borrower (or during the continuance of an Event of Default, without
notice to Borrower), Agent may provide for the payment of any fees, charges or
commissions due hereunder by advancing the amount thereof to Borrower as a
Revolving Loan. At all times that any Default Rate is being charged under this
Agreement, the Letter of Credit commission shall be equal to two percent (2.0%)
per annum in excess of the otherwise applicable commission.
(c) Subject to the remaining sentences of this clause (c),
Borrower agrees to reimburse Issuer, on demand, for each payment made by Issuer
under or pursuant to any Letter of Credit or L/C Draft issued or made on
Borrower's behalf and if not so reimbursed, each Lender
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<PAGE> 32
shall, without regard to any other provision of this Agreement or any other
Related Agreement, any defense that Borrower may have to its obligation to
reimburse Issuer in connection with such payment or any defense that any Lender
may have in connection with the participation described in SECTION 2.2(e) in
connection with any such Letter of Credit or L/C Draft, reimburse Issuer for
such Lender's Pro Rata Share of such payment, and any payments so made by
Lenders to Issuer shall be deemed to be Revolving Loans to Borrower. Agent and
Lenders agree that so long as there is sufficient Revolving Loan Availability
and provided that no Event of Default is then continuing in existence or would
be caused thereby, upon the written request of Borrower, Agent will provide for
the payment of any reimbursement obligations of Borrower under SECTION 2.2 and
any interest accrued thereon by advancing the amount thereof to Borrower as a
Revolving Loan. Prior to such advance, the amount of such reimbursement
obligations shall bear interest at the Floating Rate. Agent shall have the
option, pursuant to SECTION 2.8, to so provide for such payments even if there
is not sufficient Revolving Loan Availability or if an Event of Default is then
continuing in existence or would be caused thereby and such amounts will bear
interest at the rate set forth in SECTION 2.8. In the event a Letter of Credit
or L/C Draft is not reimbursed by Borrower or otherwise from a Revolving Loan as
provided herein, Borrower agrees to pay Agent, for the benefit of itself and
Lenders, on demand, interest at the Default Rate on any amounts paid by Issuer
in respect of a Letter of Credit or an L/C Draft issued or made on Borrower's
behalf until the reimbursement of Issuer by Borrower of such payment.
(d) At the election of Agent at any time during the existence
and continuance of an Event of Default, Borrower shall, upon Agent's demand,
deliver to Agent cash Collateral equal to the aggregate Letter of Credit
Obligations. Any such cash Collateral and/or any amounts received by Agent in
payment of the Loan made pursuant to this paragraph (d) shall be held by Agent,
for the benefit of itself, Issuer and Lenders, in the Assignee Deposit Account
or a separate account appropriately designated as a cash Collateral account in
relation to this Agreement and the Letters of Credit and shall be retained by
Agent, for the benefit of itself, Issuer and Lenders, as security in respect of
the Liabilities under or in connection with the Letters of Credit and L/C
Drafts. Such amounts shall not be used by Agent to pay any amounts drawn or paid
under or pursuant to any Letter of Credit or L/C Draft, but may be applied to
reimburse Issuer for drawings or payments under or pursuant to Letters of Credit
or L/C Drafts which Issuer has paid. Any amounts remaining in any cash
Collateral account established pursuant to this paragraph (d) following the
first to occur of the nonexistence of all Events of Default or the reimbursement
in full of all Payment Liabilities in respect of outstanding Letter of Credit
Obligations, shall be returned to Borrower.
(e) Immediately upon the issuance of a Letter of Credit in
accordance with this Agreement, each Lender shall be deemed to have irrevocably
and unconditionally purchased and received from Issuer, without recourse or
warranty, an undivided interest and participation therein to the extent of such
Lender's Pro Rata Share (including without limitation, all obligations of Issuer
thereunder to fund a draw with respect thereto); provided, that such interest
and participation therein shall not entitle a Lender to any of Issuer's standard
issuance, amendment, negotiation, or administration operating fees and charges
in connection with such Letter of Credit. Borrower indemnifies each of Agent and
each Lender against any and all liability and expense it may incur in
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<PAGE> 33
connection with any Letter of Credit or L/C Draft to Persons other than Agent or
any Lender and agrees to reimburse each of Agent and each Lender for any such
payment made by Agent or any Lender to Issuer, except for any liability incurred
or payment made as a result of Agent's or such Lender's gross negligence or
willful misconduct.
2.3. Loan Account; Demand Deposit Account.
-------------------------------------
Agent shall establish or cause to be established on its books
in Borrower's name one or more accounts (each a "Loan Account") to evidence
Loans made to Borrower. Agent or Lenders, as appropriate, will credit or cause
to be credited to commercial accounts (each a "Demand Deposit Account")
maintained by Borrower at BAI's 231 South LaSalle Street, Chicago, Illinois
office, the amount of any sums advanced as Loans hereunder, which shall be
disbursed at Borrower's direction. Any amounts advanced as Loans hereunder which
are credited to Borrower's Demand Deposit Account, together with any other
amounts advanced to Borrower as a Loan pursuant to this Agreement, will be
debited to the applicable Loan Account and result in an increase in the
principal balance outstanding in such Loan Account in the amount thereof.
2.4. Interest and Fees.
------------------
2.4.1. Interest.
---------
(a) INTEREST TO MATURITY. Unless Borrower elects to have a
portion of the Loans bear interest at the LIBOR Rate, each Loan shall be deemed
to be a Floating Rate Loan and the unpaid principal amount thereof (other than
Overdraft Loans and Over Advances) shall bear interest until maturity at a per
annum rate equal to the Floating Rate.
(b) LIBOR RATE OPTION. Borrower shall have the right, from
time to time (but not prior to the fourth (4th) day after the Closing Date), to
designate portions of the Loans as bearing interest at the then applicable LIBOR
Rate, by means of a written notice to Agent specifying (i) the amount of such
Loans that will bear interest at a LIBOR Rate (provided, that LIBOR Rate Loans
shall be in a minimum amount of the Dollar Equivalent of Five Hundred Thousand
Dollars ($500,000) and in minimum increments of the Dollar Equivalent of Two
Hundred Fifty Thousand Dollars ($250,000)); (ii) the date on which the
applicable Interest Rate Period shall begin; (iii) the Interest Rate Period
applicable thereto; and (iv) the Applicable Currency. All designations of Loans
as LIBOR Rate Loans must be received by Agent not later than 10:00 a.m., Chicago
time, three (3) Banking Days prior to the date the applicable Interest Rate
Period is to begin (or is to be continued); provided, that in the case of
Offshore Currency Loans, all such designations must be received by Agent not
later than 10:00 a.m., Chicago time, four (4) Banking Days prior to the date the
applicable Interest Rate Period is to begin (or is to be continued).
Notwithstanding the foregoing, (A) all undesignated portions of the Loans shall
bear interest at the rate set forth in SECTION 2.4.1(a), (B) the Dollar
Equivalent of the aggregate Offshore Currency Loans shall not exceed Five
Million Dollars ($5,000,000) at any time, and (C) in no event may more than five
(5) LIBOR Rate Loans having different Interest Rate Periods be outstanding at
any one time. Each designation by Borrower of a LIBOR Rate Loan shall be
irrevocable. Notwithstanding anything contained herein to the contrary, if an
Event of Default
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<PAGE> 34
exists (x) no LIBOR Rate Loan may be commenced or continued, and (y) at the end
of its Interest Rate Period, each LIBOR Rate Loan shall be converted to a
Floating Rate Loan and if not denominated in Dollars, such LIBOR Rate Loan shall
be redenominated in Dollars at its Dollar Equivalent.
(c) DEFAULT RATE. If any Event of Default is in existence, at
the option of Requisite Lenders and upon written notice by Agent to Borrower,
the entire unpaid principal balance of the Loans shall bear interest until no
such Events of Default are in existence at a rate per annum equal to the greater
of (i) the applicable interest rate from time to time in effect plus two percent
(2%) and (ii) two percent (2%) above the applicable interest rate in effect at
the time of such Event of Default.
(d) OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to SECTION 2.7
or SECTION 2.8, as applicable.
2.4.2. Fees.
-----
(a) NONUSE FEE. Borrower agrees to pay to Agent, for the
benefit of itself and Lenders, a fee equal to one-quarter of one percent (0.25%)
per annum on the daily average amount by which the Revolving Credit Amount
exceeds the outstanding principal balance of the Revolving Loans plus the Letter
of Credit Obligations. The fee provided for in this SECTION 2.4.2 shall be
payable quarterly in arrears on the first day of each calendar quarter
commencing January 1, 1997, and on the date the Revolving Credit terminates for
the period then ended. The amount of any outstanding Offshore Currency Loan on
any date shall be determined based upon the Dollar Equivalent of such Offshore
Currency Loan on the last day of the applicable calendar quarter.
(b) FEE LETTER. Borrower agrees to pay the fees set forth in
that certain Fee Letter dated as of the date hereof between Agent and Borrower.
2.4.3. Payment of Interest and Fees.
-----------------------------
Until maturity, interest on the Loans shall be payable in
arrears on the first (1st) day of each calendar quarter, commencing on January
1, 1997, and at maturity; provided, that interest on LIBOR Rate Loans shall be
payable in arrears on the last day of the Interest Rate Period applicable
thereto and at maturity. After maturity, whether by acceleration or otherwise,
accrued but unpaid interest shall be payable on demand. Upon at least two (2)
Banking Days' advance notice to Borrower (or during the continuance of an Event
of Default, without notice to Borrower), Agent may provide for the payment of
any unpaid accrued interest and any fees when due by charging the Demand Deposit
Account or any bank account maintained by Borrower with Agent or by advancing
the amount thereof to Borrower as a Revolving Loan.
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<PAGE> 35
2.4.4. Method of Calculating Interest and Fees.
----------------------------------------
Interest on the unpaid principal amount of each Loan shall
accrue from and including the date such Loan is made to, but not including, the
date such Loan is paid. Interest and any fees shall be calculated on the basis
of a year consisting of three hundred sixty (360) days and paid for actual days
elapsed; provided, that the computation of interest on LIBOR Rate Loans shall
include the date on which the applicable Interest Rate Period began, but shall
exclude the last day of the applicable Interest Rate Period. LIBOR Rate Loans
not repaid on the last day of the Interest Rate Period applicable thereto shall
be continued as LIBOR Rate Loans in the Applicable Currency (to the extent
Borrower provides written notice thereof to Agent and satisfies the requirements
of SECTION 2.4.1(b)) or converted into Floating Rate Loans (and redenominated in
Dollars at its Dollar Equivalent to the extent such Loan was an Offshore
Currency Loan) and bear interest as provided herein, from and including the last
day of such Interest Rate Period. Changes in any interest rate provided for
herein which are due to changes in the Reference Rate shall take effect on the
date of the change in the Reference Rate.
2.4.5. Funding Indemnification.
------------------------
If any payment of a LIBOR Rate Loan occurs on a date which is
not the last day of the applicable Interest Rate Period, whether because of
acceleration, prepayment or otherwise, Borrower will indemnify each Lender and
Agent for any loss or cost incurred by it resulting therefrom, including without
limitation any loss or cost in liquidating or employing deposits acquired to
fund or maintain such Loan. Agent shall deliver a written statement as to the
amount due, if any, under this SECTION 2.4.5, after consultation with each
Lender so affected. Such written statement shall set forth in reasonable detail
the calculations upon which Agent and such Lender determined such amount and
shall be final, conclusive and binding on Borrower and Lenders in the absence of
manifest error. Determination of amounts payable under this SECTION 2.4.5 shall
be calculated as though each Lender funded its LIBOR Rate Loans through the
purchase of a deposit of the type and maturity corresponding to the LIBOR Rate
Loan and applicable Interest Rate Period bearing interest at the LIBOR Base Rate
and Applicable Currency whether or not the Lender actually funded the Loan in
that manner. The amount specified in the written statement shall be payable on
demand after receipt by Borrower of the written statement.
2.4.6. Availability of Interest Rate Options.
--------------------------------------
If any Lender determines that maintenance of any of its LIBOR
Rate Loans would violate any applicable law, rule, regulation or directive,
whether or not having the force of law, such Lender shall immediately notify
Agent thereof and Agent shall suspend the availability of such LIBOR Rate Loans
and require any LIBOR Rate Loans outstanding and so affected to be repaid or, at
Borrower's option, converted to Floating Rate Loans; or if any Lender determines
that (i) deposits of a type or maturity appropriate to match fund LIBOR Rate
Loans are not available, (ii) the LIBOR Rate does not accurately reflect the
cost of making such Loans, or (iii) such Lender's ability to make or maintain
LIBOR Rate Loans has been materially adversely affected by the occurrence of any
event after the date hereof, then such Lender shall immediately notify Agent
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<PAGE> 36
thereof and Agent shall suspend the availability of the LIBOR Rate Loans, as
applicable, after the date of any such determination, and any existing LIBOR
Rate Loans shall be converted to Floating Rate Loans as soon as practicable and
in any case no later than the end of the applicable Interest Rate Period.
2.4.7. Obligation to Mitigate.
-----------------------
Agent and each Lender agrees that if it becomes aware of
either (i) the occurrence of an event or the existence of a condition described
in SECTION 2.4.6 or SECTION 9.3 that would cause Agent or such Lender to make a
determination of the nature described therein, or (ii) the imposition,
assessment or collection of any Taxes on or in respect of any Loan or Letter of
Credit (other than Taxes based on the income of Agent or such Lender, as the
case may be), Agent or Lender will, to the extent consistent with its internal
policies, use reasonable efforts to make, fund or maintain the affected Loans or
Letters of Credit through another lending office of such Agent or Lender, if
any, if, as a result thereof, the additional amounts (after taking into account
the additional expenses incurred in connection with utilizing such other lending
office) that would otherwise be required to be paid to Agent or such Lender in
respect thereof, would be reduced, or LIBOR Rate Loans could be maintained, as
the case may be, and if, as determined by Agent or such Lender in its reasonable
discretion, the issuing, making, funding or maintaining of such Loans or Letters
of Credit through such other lending office would not adversely affect Agent or
such Lender or such Loans or Letters of Credit. Borrower hereby agrees to pay
all reasonable expenses incurred by Agent or any Lender in using another lending
office pursuant to this SECTION 2.4.7.
2.5. Requests for Loans and Letters of Credit; Borrowing Base
--------------------------------------------------------
Certificates; Other Information.
--------------------------------
(a) Loans or Letters of Credit shall be requested in writing
or by telephone, except for Overdraft Loans and Revolving Loans made pursuant to
any other provision of this Agreement or any Related Agreement that permits
Agent to advance Revolving Loans to Borrower.
(b) In the event that Borrower shall at any time, or from time
to time, (i) make a request for a Loan hereunder or (ii) be deemed to have
requested an Overdraft Loan, Borrower agrees to forthwith provide Agent and
Lenders with such information, at such frequency and in such format, as is
reasonably required by Agent, such information to be current as of the time of
such request.
(c) Borrower further agrees to provide to Agent and Lenders a
current Borrowing Base Certificate on or before the twentieth (20th) day of each
month for the preceding month and at such other times as Agent may reasonably
request. Such Borrowing Base Certificate shall be in substantially the same form
as that attached hereto as EXHIBIT A, executed and certified as accurate by such
officers or employees of Borrower as Borrower designates in writing to Agent
pursuant to duly adopted resolutions of Borrower's Board of Directors
authorizing such action.
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<PAGE> 37
(d) Borrower may request, telephonically or by written
authorization, the disbursement of Revolving Loans by Agent or Lenders and by
written authorization, the issuance of Letters of Credit by Issuer, as
appropriate. Borrower shall provide Agent with documentation reasonably
satisfactory to Agent indicating the names of those employees of Borrower
authorized by Borrower to sign Borrowing Base Certificates and/or to make
telephonic requests for Loans, written requests for Letters of Credit, and/or to
authorize disbursement of the proceeds of Loans by wire transfer or otherwise,
and Agent and Lenders shall be entitled to rely upon such documentation until
notified in writing by Borrower of any change(s) in the names of the employees
so authorized. Agent and Lenders shall be entitled to act on the instructions of
anyone identifying himself as one of the persons authorized to request Loans, or
disbursements of Loan proceeds by telephone and Borrower shall be bound thereby
in the same manner as if the person were actually so authorized. Borrower agrees
to indemnify and hold each of Agent and each Lender harmless from any and all
claims, damages, liabilities, losses, costs and expenses (including Attorneys'
Fees) which may arise or be created by the acceptance of instructions for making
or paying Loans in writing or by telephone, except for such claims, damages,
liabilities, losses, costs and expenses arising as a result of the gross
negligence or willful misconduct of Agent or any Lender. Subject to SECTION
2.4.1(b), each such request must be received by Agent no later than 10:00 a.m.
(Chicago time) (i) with respect to Revolving Loans on the date on which such
Revolving Loan is requested to be made and (ii) with respect to Letters of
Credit, on the date that is five (5) Banking Days prior to the date on which
such Letter of Credit is requested to be issued.
2.6. Statements.
-----------
All Loans and Letters of Credit and payments hereunder shall
be recorded on Agent's books, which shall be rebuttably presumptive evidence of
the amount of such Loans and Letters of Credit outstanding at any time
hereunder. Agent will account monthly as to all Loans and Letters of Credit and
payments hereunder and, absent demonstrable error, each monthly accounting will
be fully binding on Borrower unless, within sixty (60) days of Borrower's
receipt thereof, Borrower shall provide Agent with a reasonably specific listing
of exceptions. Notwithstanding any term or condition of this Agreement to the
contrary, however, the failure of Agent to record the date and amount of any
Loan or Letter of Credit hereunder shall not limit or otherwise affect the
obligation of Borrower to repay any such Loan or the amount of any Letter of
Credit Obligation.
2.7. Overdraft Loans.
----------------
Agent, in its sole and absolute discretion, and subject to the
terms hereof, may make a Revolving Loan to Borrower in an amount equal to the
amount of any overdraft which may from time to time exist with respect to the
Demand Deposit Account or any bank account which Borrower may now or hereafter
have with Agent. The existence of any such overdraft shall be deemed to be a
request by Borrower for such Loan. Borrower acknowledges that Agent is under no
duty or obligation to make any Loan to Borrower to cover any overdraft. Borrower
further agrees that if the making of a Loan to cover any Overdraft would result
in an Over Advance, such overdraft shall constitute a separate Loan under this
Agreement (an "Overdraft
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<PAGE> 38
Loan"), which shall bear, from the date on which the overdraft occurred until
paid, interest in an amount equal to one hundred thirty percent (130%) of the
highest rate of interest then actually being charged for Revolving Loans (other
than Overdraft Loans) made hereunder. If Agent, in its sole and absolute
discretion, decides not to make a Loan to cover part or all of any overdraft,
Agent may return any check(s) which created such overdraft.
2.8. Over Advances.
--------------
If the aggregate outstanding Revolving Loans to, and Letter of
Credit Obligations of, Borrower exceed Revolving Loan Availability (such excess
Payment Liabilities are herein referred to as "Over Advances"), Agent, in its
sole and absolute discretion, may, for a period of five (5) Banking Days, permit
such Over Advance to exist without the consent of any Lender (but subject to
SECTION 2.1.1(a)) and continue to make Revolving Loans on behalf of Lenders, and
after the expiration of such five (5) Banking Day period, no such event or
occurrence shall cause or constitute a waiver by any Lender of its right to
refuse to make any further Revolving Loans at any time that an Over Advance
exists or would result therefrom; provided, that Agent may not (i) make
Revolving Loans on behalf of Lenders under this SECTION 2.8 to the extent such
Revolving Loans would cause a Lender's Pro Rata Share of the Dollar Equivalent
of the Revolving Loans to exceed such Lender's Maximum Revolving Loan Amount or
(ii) make Revolving Loans on behalf of Lenders under this SECTION 2.8 to the
extent such Revolving Loans would cause the then Dollar Equivalent of the
outstanding Revolving Loans and Letter of Credit Obligations to exceed in the
aggregate, the sum of Five Million Dollars ($5,000,000) and the amount of the
Dollar Equivalent of the outstanding Revolving Loans and Letter of Credit
Obligations as of the date Agent became aware of the Over Advance. During any
period in which an Over Advance exists, the amount of Over Advances shall bear
interest at a rate equal to one hundred thirty percent (130%) of the highest
rate of interest then actually being charged for Revolving Loans made hereunder.
2.9. All Loans One Obligation.
-------------------------
The Revolving Loans, the Term Loan and all other Loans under
this Agreement shall constitute one Loan, and all Indebtedness and other
Liabilities of Borrower under this Agreement and any of the Related Agreements
shall constitute one general obligation secured by Agent's Lien, for the benefit
of itself, Issuer and Lenders, on all of the Collateral and by all other Liens
heretofore, now, or at any time or times hereafter granted by Borrower or any
other Obligor to Agent, for the benefit of itself, Issuer and Lenders. Borrower
agrees that all of the rights of Agent and Lenders set forth in this Agreement
shall apply to any modification of or supplement to this Agreement, any
Schedules or Exhibits hereto, and the Related Agreements, unless otherwise
agreed in writing.
2.10. Making of Payments; Application of Collections; Charging of
-----------------------------------------------------------
Accounts.
---------
(a) All payments hereunder (including payments with respect to
any Notes) shall be made without set-off or counterclaim and shall be made to
Agent, on the date due at BAI's office at 231 South LaSalle Street, Chicago,
Illinois 60697, or at such other place as may be designated by Agent to Borrower
in writing. Except as otherwise expressly provided herein, all
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<PAGE> 39
payments by Borrower shall be made to Agent for the account of Lenders, and,
with respect to principal of, interest on, and any other amounts relating to,
any Offshore Currency Loan, shall be made in the Offshore Currency in which such
Loan is denominated or payable, and, with respect to all other amounts payable
hereunder, shall be made in Dollars. Such payments shall be made in Same Day
Funds, and (i) in the case of Offshore Currency payments, no later than such
time on the dates specified herein as may be determined by Agent to be necessary
for such payment to be credited on such date in accordance with normal banking
procedures in the place of payment, and (ii) in the case of any Dollar payments,
no later than 12:30 p.m. (Chicago time) on the date specified herein. Any
payment which is received by the Agent later than 12:30 p.m. (Chicago time), or
later than the time specified by the Agent as provided in clause (i) above (in
the case of Offshore Currency payments), shall be deemed to have been received
on the following Banking Day and any applicable interest or fee shall continue
to accrue.
(b) (i) Agent shall have the right to apply any payments in
respect of the Payment Liabilities or proceeds of Collateral received by Agent
(whether deposited in an Assignee Deposit Account or otherwise received by
Agent) to the whole or the principal and/or interest of any Loans and/or any
other Payment Liabilities, whether or not then due, in such order of application
as Agent may determine; provided, that so long as an Event of Default does not
continue to exist, (A) mandatory prepayments described in SECTION 2.1.3(a) shall
be applied to the Term Loan as provided in SECTION 2.1.3(a), (B) proceeds of
Equipment sold, transferred or otherwise disposed of pursuant to SECTION 3.4(b)
shall be applied to the Term Loan or made available to Borrower as provided in
SECTION 3.4(b), (C) proceeds of casualty insurance described in SECTION 5.6
shall be applied to the Payment Liabilities or made available to Borrower as
provided in SECTION 5.6, and (D) all proceeds of Accounts Receivable and
Inventory received by Agent (whether deposited in an Assignee Deposit Account or
otherwise received by Agent), shall, at Borrower's option, (x) be transferred to
Borrower's Demand Deposit Account or other operating account in accordance with
written instructions provided by Borrower, or (y) be applied as follows: FIRST,
to payment of amounts then due with respect to fees (including Attorneys' Fees),
charges and expenses for which Borrower is liable pursuant to this Agreement and
the Related Agreements; SECOND, to payment of amounts then due with respect to
interest on the Loans made to or for the benefit of Borrower; third, to payment
of principal of Overdraft Loans; and FOURTH, to payment of the principal of the
other Loans made to Borrower then due and owing in such order of application as
Agent may determine.
(ii) Notwithstanding anything to the contrary herein, no
checks, drafts or other instruments received by Agent shall constitute final
payment with respect to any Liabilities unless and until such item of payment
has actually been collected.
(c) Borrower hereby authorizes Agent, and Agent may, in its
sole and absolute discretion, upon at least two (2) Banking Days' advance notice
to Borrower (or during the continuance of an Event of Default, without notice to
Borrower), charge to Borrower at any time when due all or any portion of any of
the Payment Liabilities (and interest thereon, if any) including but not limited
to any Attorneys' Fees and other costs and expenses of Agent and Lenders for
which Borrower is liable pursuant to the terms of this Agreement or any Related
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<PAGE> 40
Agreement, or for which any other Obligor is liable pursuant to the terms of any
Related Agreement, by charging Borrower's Demand Deposit Account or any bank
account of Borrower with Agent or by advancing the amount thereof to Borrower as
a Revolving Loan; provided, however, that the provisions of this SECTION 2.10(c)
shall not affect Borrower's obligation to pay when due all amounts payable by
Borrower under this Agreement, any Note or any Related Agreement, whether or not
there are sufficient funds therefor in Borrower's Demand Deposit Account or any
such other bank account of Borrower.
2.11. Agent's Election Not to Enforce.
--------------------------------
Notwithstanding any term or condition of this Agreement to the
contrary, Agent, in the sole and absolute discretion of Requisite Lenders, at
any time and from time to time, may suspend or refrain from enforcing any or all
of the restrictions imposed in this SECTION 2, but no such suspension or failure
to enforce shall impair any right or power of Agent or any Lender under this
Agreement, including without limitation any right of each Lender to refrain from
making a Loan or Issuer to refrain from issuing a Letter of Credit, if all
conditions precedent applicable to such Lender's obligation to make such Loan or
Issuer's obligation to issue such Letter of Credit have not been satisfied.
2.12. Intentionally Omitted.
----------------------
2.13. Setoff.
-------
In addition to and not in limitation of all other rights and
remedies (including other rights of offset or banker's lien) that Agent and
Lenders may have under applicable law, each of Agent and each Lender shall, upon
the occurrence and during the continuance of any Event of Default or any
Unmatured Event of Default have the right to appropriate and apply to the
payment of the Payment Liabilities, in such order of application as Requisite
Lenders may elect, any and all balances, credits, deposits (general or special,
time or demand, provisional or final), accounts or moneys of Borrower then or
thereafter with Agent or any Lender. Agent and each Lender shall promptly advise
Borrower of any such setoff and application but failure to do so shall not
affect the validity of such setoff and application.
2.14. Settlements, Distributions and Apportionment of Payments.
---------------------------------------------------------
On a weekly basis (or more frequently if required by Agent) (a
"Settlement Date"), Agent shall provide each Lender with a statement of the
outstanding balance of the Liabilities as of the end of the Banking Day
preceding the Settlement Date (the "Pre-Settlement Determination Date") and the
current balance of the Revolving Loans constituting Floating Rate Loans funded
by each Lender, specifying the amounts outstanding to Borrower (whether made
directly by such Lender to Borrower or constituting a settlement by such Lender
of a previous Disproportionate Advance made by Agent on behalf of such Lender to
Borrower). If such statement discloses that such Lender's current balance of the
Revolving Loans constituting Floating Rate Loans as of the Pre-Settlement
Determination Date exceeds such Lender's Pro Rata Share of the Revolving Loans
constituting Floating Rate Loans outstanding as of the Pre-Settlement
Determination Date, then
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Agent shall, on the Settlement Date, transfer to such Lender, by wire transfer,
the net amount due to such Lender in accordance with such Lender's instructions,
and if such statement discloses that such Lender's current balance of the
Revolving Loans constituting Floating Rate Loans as of the Pre-Settlement
Determination Date is less than such Lender's Pro Rata Share of the Revolving
Loans constituting Floating Rate Loans outstanding as of the Pre-Settlement
Determination Date, then such Lender shall, on the Settlement Date, transfer to
Agent, by wire transfer the net amount due to Agent in accordance with Agent's
instructions. In addition, without duplication, payments actually received by
Agent with respect to the following items shall be distributed by Agent to
Lenders as follows:
(a) Within one (1) Banking Day of receipt thereof by Agent,
payments to be applied to interest on the Loans shall be paid to each Lender in
proportion to its Pro Rata Share in the Applicable Currency, subject to any
adjustments for any Disproportionate Advances so that Agent shall receive
interest on the Disproportionate Advances and each Lender shall only receive
interest on the amount of funds actually advanced by such Lender;
(b) Within one (1) Banking Day of receipt thereof by Agent,
payments of principal in respect of the Loans shall be paid to each Lender in a
proportion to its Pro Rata Share in the Applicable Currency; and
(c) Within one (1) Banking Day of receipt thereof by Agent,
payments to be applied to the unused line fee set forth in SECTION 2.4.2 and the
Letter of Credit commission set forth in SECTION 2.2(b), shall each be paid to
each Lender in proportion to its Pro Rata Share, subject to any adjustments for
any Disproportionate Advances.
Notwithstanding the foregoing, if a Lender has failed to remit its Pro Rata
Share of any Loans required to be made pursuant to hereto or has failed to make
a settlement payment to Agent pursuant to this SECTION 2.14, no payment shall be
made to such Lender by Agent at any time such Lender's share of the outstanding
Loans is less than such Lender's Pro Rata Share. If Agent or any Lender fails to
pay the other any payment due under this Agreement on its due date, the party to
whom such payment is due shall be entitled to recover interest from the party
obligated to make such payment at a rate per annum equal to the Federal Funds
Rate. No provision of this Agreement shall entitle any Lender to any portion of
the fees described in the Fee Letter.
3. COLLATERAL.
3.1. Grant Of Security Interest.
---------------------------
As security for the payment of all Loans now or hereafter made
by, or on behalf of, Lenders to Borrower hereunder or under any Note, and as
security for the payment or other satisfaction of all other Liabilities
(including without limitation the Letter of Credit Obligations), Borrower hereby
grants to Agent, for the benefit of itself, Issuer and Lenders, a security
interest in and to the following property of Borrower, whether now owned or
existing, or hereafter acquired or coming into existence, wherever now or
hereafter located (all such property is hereinafter referred to collectively as
the "Collateral"):
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<PAGE> 42
(a) Accounts Receivable (whether or not Eligible Accounts);
(b) Equipment and Fixtures;
(c) Inventory (whether or not Eligible Inventory);
(d) General Intangibles;
(e) Documents of title;
(f) All chattel paper and instruments evidencing, arising out
of or relating to any obligations to Borrower for goods sold or leased or
services rendered, or otherwise arising out of or relating to any property
described in this SECTION 3.1;
(g) Any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts or monies of or in the
name of Borrower now or hereafter with Agent, any Lender or any Participant and
any and all property of every kind or description of or in the name of Borrower
now or hereafter, for any reason or purpose whatsoever, in the possession or
control of, or in transit to, or standing to Borrower's credit on the books of,
Agent, any agent or bailee for Agent, any Lender, or any Participant;
(h) All interest of Borrower in any goods the sale or lease of
which shall have given or shall give rise to, and in all guaranties and other
property securing the payment of or performance under, any Accounts Receivable,
General Intangibles or any chattel paper or instruments referred to in clause
(f) above;
(i) Any and all other property of Borrower, of any kind or
description (including but not limited to real estate of Borrower), subject to a
separate mortgage, pledge or security interest in favor of Agent, for the
benefit of itself and Lenders, or in which Agent now or hereafter acquires a
security interest securing any Liabilities, whether pursuant to a written
agreement or instrument other than this Agreement or otherwise;
(j) All interest of Borrower in leases of real or personal
property, whether as lessor or lessee (including any option to purchase
thereunder);
(k) All replacements, substitutions, additions or accessions
to or for any of the foregoing;
(l) To the extent related to the property described in clauses
(a) through (k) above, all books, correspondence, credit files, records,
invoices and other papers and documents, including without limitation, to the
extent so related, all tapes, cards, computer runs, computer software and other
papers and documents in the possession or control of Borrower or any computer
bureau from time to time acting for Borrower, and, to the extent so related, all
rights in, to and under all policies of insurance, including claims of rights to
payments thereunder and proceeds therefrom, including business interruption
insurance and any credit insurance; and
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<PAGE> 43
(m) All products and proceeds (including but not limited to
any Accounts Receivable or other proceeds arising from the sale or other
disposition of any property described above, any returns of Inventory sold by
Borrower, and the proceeds of any insurance covering any of the property
described above) of any of the foregoing.
3.2. Accounts Receivable.
--------------------
(a) If requested by Agent, Borrower shall notify Agent
immediately of all material disputes and claims by any Account Debtor and settle
or adjust them, or cause them to be settled or adjusted, at no expense to Agent
or Lenders. If requested by Agent, Borrower will make proper entries in its
books and records, disclosing the assignment of Accounts Receivable to Agent,
for the benefit of itself, Issuer and Lenders.
(b) Borrower warrants and covenants that: (i) to the best of
Borrower's knowledge, all of the Accounts Receivable are and will continue to be
bona fide existing obligations created by the sale of goods, the rendering of
services, or the furnishing of other good and sufficient consideration to
Account Debtors in the regular course of business; and (ii) all shipping or
delivery receipts and other documents furnished or to be furnished to Agent in
connection therewith are and will be genuine in all material respects.
(c) Agent is authorized and empowered (which authorization and
power, being coupled with an interest, is irrevocable until the last to occur of
termination of this Agreement and payment and performance in full of all of the
Payment Liabilities under this Agreement) at any time in its reasonable
discretion:
(i) To request, in the name of Agent, in the Borrower's or the
name of a third party, at reasonable intervals determined by Agent,
confirmation from any Account Debtor or party obligated under or with
respect to any Collateral of the amount shown by the Accounts
Receivable or other Collateral to be payable, or any other matter
stated therein;
(ii) After the occurrence and during the continuance of an
Event of Default, to endorse in Borrower's name and to collect any
chattel paper, checks, notes, drafts, instruments or other items of
payment tendered to or received by Agent in payment of any Account
Receivable or other obligation owing to Borrower;
(iii) After the occurrence and during the continuance of an
Event of Default, to notify, either in Agent's name or Borrower's name,
and/or to require Borrower to notify, any Account Debtor or other
Person obligated under or in respect of any Collateral, of the fact of
Agent's Lien thereon, for the benefit of itself, Issuer and Lenders,
and of the collateral assignment thereof to Agent, for the benefit of
itself, Issuer and Lenders;
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<PAGE> 44
(iv) After the occurrence and during the continuance of an
Event of Default, to direct, either in Borrower's name or Agent's name,
and/or to require Borrower to direct, any Account Debtor or other
Person obligated under or in respect of any Collateral to make payment
directly to Agent of any amounts due or to become due thereunder or
with respect thereto; and
(v) After the occurrence and during the continuance of an
Event of Default, to demand, collect, surrender, release or exchange
all or any part of any Collateral or any amounts due thereunder or with
respect thereto, or compromise or extend or renew for any period
(whether or not longer than the initial period) any and all sums which
are now or may hereafter become due or owing upon or with respect to
any of the Collateral, or enforce, by suit or otherwise, payment or
performance of any of the Collateral either in Agent's own name or in
the name of Borrower.
Under no circumstances shall Agent be under any duty to act in regard to any of
the foregoing matters. The costs relating to any of the foregoing matters,
including Attorneys' Fees and out-of-pocket expenses, and the cost of any
Depository Account, Assignee Deposit Account, or other bank account or accounts
which may be required hereunder, shall be borne solely by Borrower whether the
same are incurred by Agent, and Agent may advance same to Borrower as a
Revolving Loan.
(d) Borrower will notify its Account Debtors to make all
payments in respect of Borrower's Accounts Receivable directly to one or more
lockbox accounts at financial institutions reasonably acceptable to Agent. All
deposits to such lockbox accounts, and all of the checks, drafts, cash and other
remittances received by Borrower in payment or as proceeds of, or on account of,
any of the Accounts Receivable or other Collateral, shall be deposited in
special bank accounts (the "Depository Accounts") on such terms, and at such
banks or financial institutions, as Agent shall consent, in its reasonable
judgment. Said proceeds shall be deposited in precisely the form received except
for Borrower's endorsement where necessary to permit collection of items, which
endorsement Borrower agree to make. Pending such deposit, Borrower agrees not to
commingle any such checks, drafts, cash and other remittances received by it
with any of its funds or property, but will hold them separate and apart
therefrom, until deposit thereof is made in the Depository Accounts. Except
during the existence and continuance of an Event of Default, all funds in
Borrower's Depository Accounts shall be available to Borrower, at its direction
(except to the extent such funds are to be applied to the Payment Liabilities as
otherwise provided in this Agreement). During the existence and continuance of
an Event of Default, all funds in the Depository Accounts at the end of each
Banking Day will be wire transferred or transferred by other means acceptable to
Agent to one or more special bank accounts (each on "Assignee Deposit Account")
at BAI, over which Agent alone has power of withdrawal. Borrower acknowledges
that the maintenance of the Assignee Deposit Accounts is solely for the
convenience of Agent in facilitating its own operations, and Borrower has not
and shall not have any right, title or interest in the Assignee Deposit Accounts
or in the amounts at any time appearing to the credit thereof. Upon the full and
final liquidation of all Payment Liabilities, Agent will pay over to Borrower
any
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<PAGE> 45
excess amounts received by Agent as payment or proceeds of Collateral, whether
received by Agent as a deposit in an Assignee Deposit Account, contained in a
lockbox account or any Depository Account or received by Agent as a direct
payment on any of the sums due hereunder.
(e) Borrower appoints Agent, or any Person whom Agent may from
time to time designate, as Borrower's attorney and agent-in-fact with power: (i)
after the occurrence and during the continuance of an Event of Default, to
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Agent; (ii) to receive, open and
dispose of all mail addressed to Borrower, but received by Agent; (iii) at
reasonable intervals determined by Agent, to send requests for verification of
Accounts Receivable or other Collateral to Account Debtors; (iv) after the
occurrence and during the continuance of an Event of Default, to open an
Assignee Deposit Account, Depository Accounts, lockbox accounts or other
accounts under Agent's sole control for the collection of Accounts Receivable or
other Collateral, if not required contemporaneously with the execution hereof;
and (v) to do all other things which Agent is permitted to do under this
Agreement or any Related Agreement or which are reasonably necessary to carry
out this Agreement and the Related Agreements. Neither Agent nor any of its
directors, officers, employees or agents will be liable for any acts of
commission or omission nor for any error in judgment or mistake of fact or law,
unless the same shall have resulted from gross negligence or willful misconduct.
The foregoing appointment and power, being coupled with an interest, is
irrevocable until all Payment Liabilities under this Agreement are paid and
performed in full and this Agreement is terminated. Borrower expressly waives
presentment, demand, notice of dishonor and protest of all instruments and any
other notice to which it might otherwise be entitled.
(f) After the occurrence and during the continuance of an
Event of Default, if any Account Receivable or General Intangible arises out of
a contract with the United States or any state or local governmental entity, or
any department, agency, or instrumentality of any thereof, Borrower will,
immediately notify Agent in writing and, at the request of Requisite Lenders,
execute any instruments and take any steps reasonably required by Agent in order
that all monies due and to become due under such contract shall be assigned to
Agent, for the benefit of itself, Issuer and Lenders, and notice thereof given
to the applicable governmental entity under the Federal Assignment of Claims Act
of 1940, as amended, or other applicable laws or regulations.
(g) If any Account Receivable is evidenced by chattel paper or
promissory notes, trade acceptances, or other instruments for the payment of
money, Borrower will, unless Agent shall otherwise agree, deliver the originals
of same to Agent, appropriately endorsed to Agent's order and, regardless of the
form of such endorsement, Borrower hereby expressly waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto.
3.3. Inventory.
----------
(a) Borrower warrants and covenants that: (i) all of the
Inventory is, and at all times shall be, owned by Borrower free of all claims
and Liens (except as set forth in and permitted by SECTION 5.15); and (ii)
Borrower will not make any further assignment of any thereof
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<PAGE> 46
or create or permit to exist any further Lien thereon, unless approved in
writing by Requisite Lenders, nor permit any of Agent's rights therein to be
affected by any attachment, levy, garnishment or other judicial process.
(b) Neither Agent nor any Lender shall be liable or
responsible to Borrower in any way for the safekeeping of any Inventory
delivered to it, to any bailee appointed by or for it, to any warehouseman, or
under any other circumstances, except that Agent and each Lender shall be
responsible for its own gross negligence or willful misconduct. Any and all risk
of loss for any or all of the foregoing shall be upon Borrower, except for such
loss as shall result from Agent's or any Lender's gross negligence or willful
misconduct.
(c) If reasonably requested by Agent, Borrower shall, upon
acquiring an interest in any Inventory, deliver to Agent schedules of such
Inventory, together with, to the extent applicable or available, supplier's
invoices, warranties, production, costs and other records as Agent may
reasonably request. If reasonably requested by Agent, Borrower shall deliver to
Agent schedules of the sale of any Inventory promptly upon its sale. Any
material change in the value, or condition of any Inventory, and any material
errors discovered in schedules delivered to Agent and Lenders, shall be reported
to Agent promptly. Borrower represents and warrants that, as to each Schedule of
Inventory delivered to Agent or any Lender:
(i) The descriptions, origins, sizes, qualities, quantities,
weights, and markings of all goods stated thereon, or on any attachment
thereto, are true and correct in all material respects;
(ii) All of the goods are new and unused, except as otherwise
described therein; and
(iii) All Inventory not included on such schedule has been
previously scheduled.
(d) If requested by Agent, Borrower will notify Agent
immediately if Borrower obtains possession (by return, repossession or
otherwise) of any Inventory with a value in excess of One Hundred Thousand
Dollars ($100,000) which has been sold, and will inform Agent of the identity of
such returned or repossessed Inventory, the applicable Account Debtor and the
amount of the applicable Account Receivable.
3.4. Equipment.
----------
(a) Borrower shall at all times keep the Equipment in good
operating condition and repair, ordinary wear and tear excepted, and Borrower
shall not, without the prior written consent of Requisite Lenders, sell, lease,
or otherwise dispose of any Equipment, or any part thereof or interest therein;
provided, however, that without Requisite Lenders' consent (but with notice to
Agent), Borrower may dispose of obsolete or non-useful Equipment in the ordinary
course of its business in an arm's length transaction for an amount
substantially equivalent to the
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fair market value of such Equipment; provided, the Equipment disposed of in any
Fiscal Year has an aggregate fair market value of One Million Dollars
($1,000,000) or less.
(b) In the event any Equipment is sold, transferred or
otherwise disposed of as provided in SECTION 3.4(a), unless Requisite Lenders
shall agree otherwise or unless such Equipment is encumbered by a prior Lien in
favor of another Person permitted under SECTION 5.15, Borrower shall deliver all
of the proceeds (net of the costs and expenses incurred in connection with such
sale) of any such sale, transfer or disposition to Agent, which proceeds shall
be applied to the unpaid installments of the Term Loan in the inverse order of
their maturities; provided, that so long as no Event of Default then exists,
Borrower may elect (by written notice to Agent) to use such proceeds to
purchase, within sixty (60) days of receipt of such proceeds, replacement assets
of a kind then used or useable in the business of Borrower.
(c) Borrower will, upon the reasonable request of Agent,
submit to Agent a current listing of all of Borrower's Equipment. As long as no
Event of Default or Unmatured Event of Default exists which is continuing,
listings of Borrower's Equipment will not be required to be delivered (i) until
thirty (30) days after Agent's request therefor or (ii) more frequently than
once each calendar quarter.
3.5. Supplemental Documentation.
---------------------------
At Agent's request, Borrower shall execute and deliver, or
cause to be executed and delivered, to Agent, at any time or times hereafter,
such agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or reasonably requested
by Agent to perfect and maintain perfected Agent's Lien on the Collateral, for
the benefit of itself, Issuer and Lenders (all the above hereinafter referred to
as "Supplemental Documentation"), in form and substance reasonably acceptable to
Agent, and pay all taxes, fees and other costs and expenses associated with any
recording or filing of the Supplemental Documentation. Borrower hereby
irrevocably makes, constitutes and appoints Agent (and all Persons designated by
Agent for that purpose) as Borrower's true and lawful attorney (and
agent-in-fact) (which appointment and power, being coupled with an interest, is
irrevocable until the last to occur of termination of this Agreement and payment
and performance in full of all of the Payment Liabilities under this Agreement)
to sign the name of Borrower on any of the Supplemental Documentation and to
deliver any of the Supplemental Documentation to such Persons as Agent may
elect; provided, that Agent shall not act as such attorney and agent-in-fact
until ten (10) days after it has provided written notice to Borrower requesting
Borrower to sign and deliver such Supplemental Documentation and Borrower has
failed to do so with such ten (10) day period. Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
3.6. Collateral for the Benefit of Agent and Lenders.
------------------------------------------------
All Liens granted to Agent hereunder and under the Related
Agreements and all Collateral delivered to Agent hereunder and under the Related
Agreements shall be deemed to
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have been granted and delivered to Agent, for the benefit of itself, Issuer and
Lenders, to secure the Liabilities.
4. REPRESENTATIONS AND WARRANTIES.
To induce Agent and Lenders to make Loans to, and Issuer to
issue Letters of Credit for the account of, Borrower under this Agreement,
Borrower makes the following representations and warranties to Agent and
Lenders, all of which shall be true and correct as of the date the initial Loan
is made and the initial Letter of Credit is issued and shall survive the
execution of this Agreement and the making of the initial Loan:
4.1. Organization.
-------------
Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each Company other
than Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its respective incorporation.
Each Company is in good standing and is duly qualified to do business in each
jurisdiction where, because of the nature of its activities or properties, such
qualification is required, except for those jurisdictions where the failure to
be qualified is not reasonably likely to have a Material Adverse Effect. Except
as set forth on SCHEDULE 4.1, on the date hereof, each Company conducts business
in its own name exclusively. SCHEDULE 4.1 sets forth a complete and accurate
list, as of the date of this Agreement, of (a) the jurisdiction of formation of
each Company, (b) each jurisdiction in which such Company is qualified to do
business and (c) all of such Company's tradenames, trade styles or doing
business forms and a description of how such forms are used by such Company.
4.2. Authorization.
--------------
Borrower is duly authorized to execute and deliver this
Agreement, any Notes, and any Related Agreements or Supplemental Documentation
contemplated by this Agreement, and is and will continue to be duly authorized
to borrow monies hereunder and to perform its obligations under this Agreement,
any Notes and any such Related Agreements and Supplemental Documentation. Each
Company other than Borrower is duly authorized to execute and deliver any
Related Agreements or Supplemental Documentation contemplated to be delivered by
such Company and is and will continue to be duly authorized to perform its
obligations thereunder. The execution, delivery and performance by (a) Borrower
of this Agreement, any Notes, and any Related Agreements or Supplemental
Documentation contemplated by this Agreement, and the borrowings hereunder and
(b) each Company other than Borrower of any Related Agreements or Supplemental
Documentation to which it is a party, do not and will not require any consent or
approval of any governmental agency or authority.
4.3. No Conflicts.
-------------
The execution, delivery and performance by Borrower of this
Agreement, any Notes, and any Related Agreements or Supplemental Documentation
contemplated by this
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Agreement to which it is a party do not and will not conflict with (i) any
provision of applicable law, (ii) its By-laws, (iii) its Certificate of
Incorporation, (iv) any material agreement binding upon Borrower, or (v) any
court or administrative order or decree applicable to Borrower, and do not and
will not require, or result in, the creation or imposition of any Lien on any
asset of Borrower, except as provided herein. The execution, delivery and
performance by each Company other than Borrower of any Related Agreements or
Supplemental Documentation to which it is a party, do not and will not conflict
with (i) any provision of applicable law, (ii) the organizational documents of
such Company, (iii) any material agreement binding upon such Company, or (iv)
any court or administrative order or decree applicable to such Company, and do
not and will not require, or result in, the creation or imposition of any Lien
on any asset of such Company, except as provided herein.
4.4. Validity and Binding Effect.
----------------------------
This Agreement, any Notes, and any Related Agreements or
Supplemental Documentation contemplated by this Agreement, when duly executed
and delivered, will be legal, valid and binding obligations of each Company
party thereto, as applicable, enforceable against such Company in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
4.5. No Default.
-----------
No Company is in default under any agreement or instrument to
which such Company is a party or by which any of its respective properties or
assets is bound or affected, which default is reasonably likely to have a
Material Adverse Effect. No Event of Default or Unmatured Event of Default has
occurred and is continuing.
4.6. Financial Statements.
---------------------
(a) Borrower has furnished to Agent and Lenders the following:
(i) the audited balance sheet of the "Unifrax Group" (as
defined in the Recapitalization Agreement) as of December 31, 1995 and
the related audited statements of income, changes in parent company
investment and cash flows for the year then ended; and
(ii) the unaudited combined balance sheet as of June 30, 1996
and the related unaudited combined statements of income, changes in
parent company investment and cash flow of the Unifrax Group for the
six (6) month period ended on June 30, 1996.
The foregoing financial statements present fairly, in all material respects, the
financial position and results of operations of the Unifrax Group in accordance
with GAAP (except for year-end adjustments and footnotes with respect to the
unaudited financial statements) as
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<PAGE> 50
applied by Sellers. As of the date hereof, except as described on Schedule 4.6,
since December 31, 1995, there has been no Material Adverse Change with respect
to Borrower.
(b) Borrower has also furnished to Agent and Lenders certain
projections dated September 25, 1996 giving effect to the Acquisition. The
foregoing projections constitute Borrower's good faith estimate of Borrower's
financial position and results of operations as of the dates and for the periods
indicated. As of the date of this Agreement, Borrower knows of no fact that
materially adversely affects the reliability, accuracy and completeness of the
foregoing projections.
4.7. Insurance.
----------
SCHEDULE 4.7 hereto is in all material respects a complete and
accurate summary as of the date hereof of the property and casualty insurance
program carried by Borrower on the date hereof. SCHEDULE 4.7 includes the
insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, the annual premium(s), deductibles and
self-insured retention and describes any retrospective rating plan, fronting
arrangement or any other self-insurance or risk assumption agreed to by Borrower
or imposed upon Borrower by any such insurer. This summary also includes any
self-insurance program that is in effect.
4.8. Litigation; Contingent Liabilities.
-----------------------------------
(a) Except for those referred to in SCHEDULE 4.8, as of the
date hereof, there are no claims, litigation, arbitration proceedings or
governmental proceedings pending or threatened against or affecting any Company
which, if determined adversely to such Company, are reasonably likely to have a
Material Adverse Effect.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in SCHEDULE 4.8 or SCHEDULE 4.19, or
provided for or disclosed in the financial statements referred to in SECTION
4.6, as of the date hereof, no Company has any contingent liabilities which are
reasonably likely to have a Material Adverse Effect.
4.9. Liens.
------
None of the Collateral or other property of any Company is
subject to any Lien (including but not limited to Liens pursuant to Capitalized
Leases under which such Company is a lessee) except: (a) Liens in favor of
Agent, for the benefit of itself, Issuer and Lenders; (b) Liens for current
Taxes not delinquent or Taxes being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate provisions as may
be required by GAAP are being maintained; (c) landlord's, carriers',
warehousemen's, mechanics', materialmen's and other like statutory Liens arising
in the ordinary course of business securing obligations which are not overdue or
which are being contested in good faith and by appropriate proceedings and as to
which such reserves or other appropriate provisions as may be required by GAAP
are being maintained; (d) Liens listed on SCHEDULE 4.9; (e) Liens permitted by
SECTION 5.15; (f) deposits under worker's compensation, unemployment insurance
and social security legislation or to secure
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<PAGE> 51
the performance of bids, tenders, contracts or leases or to secure obligations
under surety, appeal, indemnity, performance or similar bonds, all in the
ordinary course of business; (g) banker's Liens and other similar Liens in
respect of bank deposits; (h) zoning restrictions, easements, rights-of-way,
title irregularities and other similar encumbrances pertaining to the real
property of Borrower and existing on the date hereof, which do not materially
detract from the value of the property subject thereto or interfere in any
material respect with the ordinary conduct of business of Borrower; and (i)
Liens consented to in writing by Requisite Lenders.
4.10. Subsidiaries.
-------------
As of the date hereof, all Subsidiaries of each Company are
listed on SCHEDULE 4.10. SCHEDULE 4.10 sets forth, as of the date hereof, for
each such Subsidiary, a complete and accurate statement of the owners of
Holdings and each Company and each owner's percentage ownership therein.
4.11. Partnerships; Joint Ventures.
-----------------------------
As of the date hereof, no Company is a partner or joint
venturer in any partnership or joint venture other than the partnerships and
joint ventures listed on SCHEDULE 4.11. As of the date hereof, SCHEDULE 4.11
sets forth, for each such partnership or joint venture, a complete and accurate
statement of (a) the owners and each owner's percentage ownership of each such
partnership or joint venture, (b) the state or other jurisdiction of formation
or incorporation, as appropriate, of each such partnership or joint venture, (c)
each state or other jurisdiction in which each such partnership or joint venture
is qualified to do business and (d) all of each such partnership's or joint
venture's trade names, trade styles or doing business forms on the date of this
Agreement.
4.12. Business and Collateral Locations.
----------------------------------
(a) On the date hereof, the office where Borrower keeps its
books and records concerning its Accounts Receivable and other Collateral, and
Borrower's chief place of business and chief executive office, is located at the
address of Borrower set forth on the signature pages of this Agreement. SCHEDULE
4.12 accurately identifies, as of the date hereof, the office where each Company
other than Borrower has its chief executive office. SCHEDULE 4.12 contains a
complete and accurate list, as of the date of this Agreement, of each Company's
places of business other than that referred to in the first two sentences of
this paragraph (a).
(b) Except for the sales offices referred to on SCHEDULE 4.12,
Schedule 4.12 contains a complete and accurate list, as of the date of this
Agreement, of the locations of (i) all of Borrower's Inventory, Equipment and
Fixtures and (ii) if any Collateral is not in the possession or control of
Borrower or the owner of such Collateral, the name and mailing address of each
bailee, processor, warehouseman, consignee or other Person in possession or
control thereof.
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<PAGE> 52
4.13. Real Property.
--------------
SCHEDULE 4.13 contains a complete and accurate list, as of the
date of this Agreement of (a) the address and legal descriptions of any real
property owned by Borrower and (b) in the case of Fixtures located on property
not owned by Borrower occupying such property, the name(s) and mailing addresses
of the record owners of such property, excluding, however, the sales offices
referred to on SCHEDULE 4.12.
4.14. Eligibility of Collateral.
--------------------------
Each Account Receivable or item of Inventory which Borrower
shall, expressly or by implication (by inclusion on a Borrowing Base Certificate
or otherwise), request Agent to classify as an Eligible Account Receivable or as
Eligible Inventory, respectively, will, as of the time when such request is
made, conform in all material respects to the requirements of such
classification set forth in the respective definitions of "Eligible Account
Receivable" and "Eligible Inventory" set forth herein.
4.15. Control of Collateral; Lease of Property.
-----------------------------------------
SCHEDULE 4.15 contains a complete and accurate list as of the
date hereof of (a) all leases (including Capitalized Leases) under which
Borrower is the lessee covering any machinery, equipment or real property used
by Borrower (excluding, however, the sales offices referred to on SCHEDULE 4.12)
and (b) the name and mailing address of each lessor or owner of such machinery,
equipment or real property.
4.16. Patents, Trademarks, Etc.
-------------------------
Each Company possesses adequate licenses, patents, patent
applications, copyrights, trademarks, trademark applications, trade styles, and
tradenames to continue to conduct its respective business in all material
respects as heretofore conducted by it, and all such licenses, patents, patent
applications, copyrights, trademarks, trademark applications, trade styles, and
tradenames existing on the date hereof of that are material to the operation of
Borrower's business or of a material value are listed on SCHEDULE 4.16.
4.17. Solvency.
---------
Each Company has capital sufficient to carry on its businesses
and transactions and all businesses and transactions in which it is about to
engage, and is able to pay its debts as they mature. Each Company is solvent and
owns property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay its debts.
4.18. Contracts; Labor Matters.
-------------------------
Except as disclosed on SCHEDULE 4.18, as of the date hereof:
(a) no Company is a party to any contract or agreement, or is subject to any
judgment, decree or order, which is reasonably likely to have a Material Adverse
Effect; (b) no Company has any employment
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<PAGE> 53
contracts with any of its employees; (c) no Company has any contract with any
Person that is material to such Company's business or financial condition, (d)
no collective bargaining agreement to which any Company is a party or is
otherwise subject is scheduled to expire prior to the Termination Date; (e) no
Company has, within the two (2)-year period preceding the date of this
Agreement, taken any action which would have constituted or resulted in a "plant
closing" or "mass layoff" within the meaning of the Federal Worker Adjustment
and Retraining Notification Act of 1988 or any similar applicable federal, state
or local law (except with respect to the Discontinued Operations in compliance
with applicable law), and no Company has a reasonable expectation that any such
action is or will be required at any time prior to the initial Termination Date
and (f) on the date of this Agreement (i) no Company is a party to any labor
dispute which is reasonably likely to have a Material Adverse Effect, and (ii)
there are no strikes or walkouts relating to any labor contracts to which any
Company is a party or is otherwise subject.
4.19. Pension and Welfare Plans.
--------------------------
Each Pension Plan complies, and has been administered in
compliance, in all material respects, with all applicable statutes and
governmental rules and regulations; no Reportable Event has occurred and is
continuing with respect to any Pension Plan which is reasonably likely to have a
Material Adverse Effect; neither any Company nor any ERISA Affiliate has
withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial
withdrawal" as defined in Section 4203 or 4205 of ERISA, respectively, which is
reasonably likely to have a Material Adverse Effect; no steps have been
instituted to terminate any Pension Plan which is reasonably likely to have a
Material Adverse Effect; no contribution failure has occurred with respect to
any Pension Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA; and no condition exists or event or transaction has occurred in
connection with any Pension Plan or Multiemployer Plan that is reasonably likely
to have a Material Adverse Effect. Except as listed in SCHEDULE 4.19, as of the
date hereof, no Company has any liability to pay any welfare benefits under any
employee welfare benefit plan within the meaning of Section 3(l) of ERISA to
former employees thereof or to current employees with respect to claims incurred
after the termination of their employment other than as required by Section
4980B of the Code or Part 6 of Subtitle B of Title 1 of ERISA.
4.20. Regulations G and U.
--------------------
No Company is engaged in the business of purchasing or selling
Margin Stock or extending credit to others for the purpose of purchasing or
carrying Margin Stock, and no part of the proceeds of any borrowing hereunder
will be used to purchase or carry any Margin Stock or for any other purpose
which would violate any of the margin regulations of the Federal Reserve Board.
4.21. Compliance.
-----------
Except as described on SCHEDULE 4.21 or SCHEDULE 4.25, as of
the date hereof, each Company is in compliance with all statutes and
governmental rules and regulations applicable to it, the noncompliance with
which is reasonably likely to have a Material Adverse Effect.
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<PAGE> 54
4.22. Taxes.
------
As of the date hereof, each Company has filed all tax returns
which are required to have been filed and has paid, or made adequate provisions
for the payment of, all of its Taxes which are due and payable, except such
Taxes, if any, as are being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate provisions as may
be required by GAAP have been maintained. Except as set forth on SCHEDULE 4.22,
as of the date hereof, there has been no audit of the federal income tax
liability of any of the Companies by the Internal Revenue Service. The current
status of each such audit (if any) is described on SCHEDULE 4.22. As of the date
hereof, no Company is aware of any proposed assessment against any Company for
additional Taxes (or any basis for any such assessment) which is reasonably
likely to have a Material Adverse Effect.
4.23. Investment Company Act Representation.
--------------------------------------
No Company is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.24. Public Utility Holdings Company Act Representation.
---------------------------------------------------
No Company is a "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" of a "Holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
4.25. Environmental and Safety and Health Matters.
--------------------------------------------
Except as disclosed on SCHEDULE 4.25, each Company and/or each
property, operations and facility that such Company owns, operates or controls
(a) complies in all respects with (i) all applicable Environmental Laws, except
for those laws with respect to which the failure to comply is not reasonably
likely to have a Material Adverse Effect and (ii) all applicable Occupational
Safety and Health Laws, except for those laws with respect to which the failure
to comply is not reasonably likely to have a Material Adverse Effect; (b) is not
subject to any pending judicial or administrative proceeding alleging the
violation of any Environmental Law or Occupational Safety and Health Law which
is reasonably likely to have a Material Adverse Effect; (c) has not received any
notice (i) that it may be in violation of any Environmental Law or Occupational
Safety and Health Law, (ii) threatening the commencement of any proceeding
relating to allegedly unlawful, unsafe or unhealthy conditions, or (iii)
alleging that it is or may be responsible for any response, cleanup, or
corrective action, including but not limited to any remedial
investigation/feasibility studies, under any Environmental Law or Occupational
Safety and Health Law that in the case of any of (i), (ii) or (iii) is
reasonably likely to have a Material Adverse Effect; (d) is not the subject of
any pending federal or state investigation that is reasonably likely to have a
Material Adverse Effect evaluating whether any investigation, remedial action or
other response is needed to respond to (i) a Release or threatened Release into
the environment of any Hazardous Material or (ii) any allegedly unsafe or
unhealthful condition; (e) has not filed any notice under or relating to any
Environmental Law or Occupational Safety and Health Law that is
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<PAGE> 55
reasonably likely to have a Material Adverse Effect indicating or reporting (i)
any past or present Release into the environment of, or treatment, storage or
disposal of, any Hazardous Material or (ii) any potentially unsafe or
unhealthful condition, and, to the best of Borrower's knowledge, there exists no
reasonable basis for such notice irrespective of whether such notice was
actually filed; and (f) has no contingent liability that is reasonably likely to
have a Material Adverse Effect in connection with (i) any actual or potential
Release into the environment of, or otherwise with respect to, any Hazardous
Material, whether on any premises owned or occupied by such Company or, to the
best of Borrower's knowledge, on any other premises or (ii) any unsafe or
unhealthful condition. Except as disclosed on SCHEDULE 4.25, there are no
Hazardous Materials on, in or under any property or facilities owned, operated
or controlled by any Company, including but not limited to such Hazardous
Materials that may be contained in underground storage tanks, except those
Hazardous Materials necessary for the operation of a Company's business that are
used in compliance with all applicable Environmental Laws, except for those laws
with respect to which the failure to comply is not reasonably likely to have a
Material Adverse Effect.
4.26. Other Transactions.
-------------------
The Acquisition has been consummated in accordance with and
pursuant to the terms of the Acquisition Documents, and in compliance in all
material respects with all applicable laws. The execution of all such
Acquisition Documents has been duly authorized by all necessary action on the
part of any Company party thereto and will not require any consent or approval
of any governmental agency or authority that has not been obtained prior to the
date hereof. The execution of all such Acquisition Documents does not conflict
with (i) any provisions of applicable law, (ii) the organizational documents of
any Company party thereto, (iii) any material agreement binding upon such
Company or (iv) any court or administrative order or decree applicable to such
Company.
4.27. Related Agreements and Acquisition Documents.
---------------------------------------------
As of the date hereof, all representations and warranties of
each Company contained in any Related Agreements and all representations and
warranties of each Company party thereto (other than the Sellers) contained in
any Acquisition Document (whether such representations and warranties were made
to Agent or any Lender or to another Person) are true and correct in all
material respects as if made on the date hereof and Borrower hereby adopts and
affirms all such representations and warranties.
5. COVENANTS.
From the date of this Agreement and thereafter until the
Credit is terminated and all Payment Liabilities of Borrower hereunder are paid
in full, Borrower agrees that, unless Agent (at the written direction of
Requisite Lenders) shall otherwise consent in writing, it will:
5.1. Financial Statements and Other Reports.
---------------------------------------
Furnish to Agent and each Lender, in form reasonably
satisfactory to Agent:
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<PAGE> 56
5.1.1. Financial Reports:
------------------
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. Within ninety (90)
days after each Fiscal Year, a copy of the annual audited financial statements
of Borrower prepared on a consolidated and consolidating basis and in conformity
with GAAP and certified by an independent certified public accountant who shall
be reasonably satisfactory to Agent, together with a certificate from such
accountant in form and substance reasonably satisfactory to Agent, (i)
acknowledging to Agent and Lenders such accountant's understanding that Agent,
Lenders and any Participant are relying on such annual audit report and (ii)
containing (A) a computation of, and showing compliance with, each of the
financial ratios and restrictions contained in this SECTION 5 and (B) a
computation of Excess Cash Flow for such Fiscal Year.
(b) MONTHLY FINANCIAL STATEMENT. Within thirty (30) days after
the end of each month of each Fiscal Year (commencing with the month ending
December 31, 1996), a copy of the unaudited consolidated and consolidating
financial statement of Borrower, prepared in the same manner as the audit report
referred to in preceding clause (a) (except for year end adjustments and
footnotes), signed by Borrower's chief executive officer, president or chief
financial officer and consisting of at least a balance sheet as at the close of
such month and statements of earnings and cash flows for such month and for the
period from the beginning of such Fiscal Year to the close of such month.
(c) OFFICER'S CERTIFICATE. Together with the financial
statements under the preceding clauses (a) and (b), a certificate of Borrower's
chief executive officer, president or chief financial officer in the form of
EXHIBIT B, dated the date of such annual audit report or such monthly financial
statement, as the case may be, containing a statement that no Event of Default
or Unmatured Event of Default has occurred and is continuing, or, if there is
any such event, describing it and the steps, if any, being taken to cure it, and
containing (A) a computation of, and showing compliance with, each of the
financial ratios and restrictions contained in this SECTION 5, and (B) a
computation of Excess Availability.
(d) ANNUAL BUDGETS. Within thirty (30) days after the end of
each Fiscal Year, an annual budget for Borrower for the succeeding Fiscal Year,
prepared on a consolidated and consolidating basis and in conformity with the
financial statements furnished under the preceding clauses (a) and (b), signed
by Borrower's chief executive officer, president or chief financial officer and
consisting of at least a balance sheet, an income statement and a cash flow
statement, each calculated on a month by month basis.
(e) MANAGEMENT LETTERS. Within ten (10) days after receipt
thereof by any Company, copies of any management letters or comparable letters
delivered to such Company by any accountant retained by such Company.
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<PAGE> 57
5.1.2. Agings.
-------
Within twenty (20) days after the end of each month, an aging
of all Accounts Receivable of Borrower and an aging of all accounts payable of
Borrower as of the end of such month, in each case in form and content
reasonably acceptable to Agent.
5.1.3. Inventory Certification.
------------------------
Within twenty (20) days after the end of each month, an
Inventory certification report as of the end of the month for all Inventory
locations of Borrower in form and content reasonably acceptable to Agent.
5.1.4. Borrowing Base Certificate.
---------------------------
The Borrowing Base Certificate required under SECTION 2.5(c).
5.1.5. Other Reports and Information:
------------------------------
(a) SEC AND OTHER REPORTS. If applicable, copies of each
filing and report made by any Company or Holdings with or to any securities
exchange or the Securities and Exchange Commission and of each material
communication from any Company to shareholders generally, promptly upon the
filing or making thereof;
(b) REPORT OF CHANGES RELATING TO BORROWER, SUBSIDIARIES OR
PARTNERSHIPS. Promptly from time to time, a written report of any change in the
information set forth in SCHEDULE 4.1, SCHEDULE 4.10 or SCHEDULE 4.11 concerning
any Company, any partnership or any joint venture;
(c) PATENTS, ETC. Promptly from time to time, a written report
of any change to the list of patents, trademarks, copyrights and other
information set forth in SCHEDULE 4.16 (provided, that changes to the
information listed on SCHEDULE 4.16 pertaining to registrations in countries
other than the United States shall be provided by Borrower to Agent annually
within sixty (60) days after the end of each Fiscal Year); and
(d) OTHER REPORTS. Any information required to be provided
pursuant to other provisions of this Agreement, and such other reports or
information from time to time reasonably requested by Agent on behalf of itself
or any Lender.
5.1.6. Annual Insurance Certificate.
-----------------------------
Within thirty (30) days after the end of each anniversary of
the Closing Date, Borrower shall provide new insurance certificates satisfying
the requirements of SECTION 5.6.
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5.2. Notices.
--------
Notify Agent in writing of any of the following promptly upon
learning of the occurrence thereof (or, in the case of clauses (e) and (f) of
this SECTION 5.2, at least ten (10) days prior to the occurrence thereof),
describing the same and, if applicable, the steps being taken by the Person(s)
affected with respect thereto:
(a) DEFAULT. The occurrence of (i) an Event of Default or
Unmatured Event of Default and (ii) to the extent not included in clause (i) of
this SECTION 5.2(A), the default by any Company or any other Obligor under any
note, indenture, loan agreement, mortgage, lease, deed or other material similar
agreement to which such Company or any other Obligor, as appropriate, is a party
or by which it is bound, other than any such default which is not reasonably
likely to have a Material Adverse Effect;
(b) LITIGATION. The institution of any litigation,
arbitration, proceeding or governmental proceeding affecting any Company or any
other Obligor, or any Collateral or other property subject to a Lien in favor of
Agent, for the benefit of itself, Issuer and Lenders, whether or not considered
to be covered by insurance, if the amount claimed exceeds Five Hundred Thousand
Dollars ($500,000);
(c) JUDGMENT. The entry of any judgment or decree against any
Company or any other Obligor, if the amount of such judgment exceeds Three
Hundred Fifty Thousand Dollars ($350,000);
(d) PENSION PLANS AND WELFARE PLANS. The occurrence of a
Reportable Event with respect to any Pension Plan; the filing of a notice of
intent to terminate a Pension Plan by any Company or any ERISA Affiliate; the
institution of proceedings to terminate a Pension Plan by the PBGC or any other
Person; the withdrawal in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205, respectively, of ERISA by any Company, any
ERISA Affiliate or any other Obligor from any Multiemployer Plan; the failure of
any Company, any other Obligor or any ERISA Affiliate to make a required
contribution to any Pension Plan, including but not limited to the any failure
to pay an amount sufficient to give rise to a Lien under Section 302(f) of
ERISA; the taking of any action with respect to a Pension Plan which could
result in the requirement that any Company or any ERISA Affiliate furnish a bond
or other security to the PBGC or such Pension Plan; the occurrence of any other
event with respect to any Pension Plan which could result in the incurrence by
any Company or any ERISA Affiliate of any material liability, fine or penalty;
or the establishment of a new plan subject to ERISA or an amendment to any
existing plan which will result in a material increase in contributions or
benefits under such plan or the incurrence of any material increase in the
liability of any Company, any other Obligor (or an ERISA Affiliate to the extent
there is joint and several liability with any Company) or any Subsidiary, with
respect to any "employee welfare benefit plan" as defined in Section 3(l) of
ERISA which covers former employees thereof or current employees and their
beneficiaries with respect to claims incurred after the termination of their
employment;
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<PAGE> 59
(e) BUSINESS AND COLLATERAL INFORMATION. Except with respect
to the sales offices referred to on SCHEDULE 4.12, any change or proposed change
in any of the information set forth on SCHEDULE 4.12, SCHEDULE 4.13 or SCHEDULE
4.15 (as to real property only) including but not limited to (i) any change in
the location where any Inventory or Equipment or other Collateral is kept, (ii)
the identity of any new bailee, processor, warehouseman, consignee or other
Person in possession or control of any Inventory or Equipment or other
Collateral, (iii) any change in the name or address of the lessor or owner of
any real property or equipment leased to any Company or any other Obligor, (iv)
any proposed change in the location of any Company's or any other Obligor's
chief executive office or chief place of business, (v) any proposed opening,
closing or other change in the list of offices and other places of business of
any Company and (vi) any opening, closing or other change in the offices and
other places of business of each other Obligor;
(f) CHANGE OF NAME. Any change in the name of any Company or
any other Obligor;
(g) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. The
occurrence of any event, or the acquisition of any information which, if it had
occurred or was true on or before the Closing Date, would have been required to
have been disclosed and included on SCHEDULE 4.25 to the extent such event or
the event described in such information is reasonably likely to have a Material
Adverse Effect, and to the existence of any Environmental Lien and receipt of
any notice from any federal, state or local government or agency with respect to
any actual or alleged violation of any Environmental Law or any Occupational
Safety and Health Law;
(h) MATERIAL ADVERSE CHANGE OR EFFECT. The occurrence of a
Material Adverse Change or the occurrence of any event that would be reasonably
likely to have a Material Adverse Effect;
(i) DEFAULT BY OTHERS. Any material default by any Account
Debtor or other Person obligated to any Company or any other Obligor, under any
contract, note or other evidence of amounts payable or due or to become due to
such Company, or such other Obligor if the amount payable under such contract,
note or other evidence of amounts payable or due or to become due is reasonably
likely to have a Material Adverse Effect;
(j) MOVEABLE COLLATERAL. If any of the Collateral shall
consist of Equipment of a type normally used in more than one state, whether or
not actually so used, the change in location of any use of any such Equipment in
any state other than a state in which Borrower or the applicable Obligor shall
have previously advised Agent such Equipment will be used. Borrower agrees that
such Equipment will not, unless Agent shall otherwise consent in writing, be
used outside the continental United States;
(k) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any
substantial change in the senior management of any Company or any material
change in any Company's line(s) of business; and
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<PAGE> 60
(l) OTHER NOTICES. Any notices required to be provided
pursuant to any Related Agreement or the other provisions of this Agreement.
5.3. Existence.
----------
Maintain and preserve, and cause each other Company to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights, copyrights, trademarks, trade names, trade
styles, franchises and other authority to the extent the failure to so maintain
and preserve is reasonably likely to have a Material Adverse Effect.
5.4. Nature of Business.
-------------------
Engage in, and cause each other Company to engage in, similar
or related fields of business as it is engaged in on the date hereof, including
reasonable extensions of such business operations.
5.5. Books, Records and Access.
--------------------------
Maintain, and cause each other Company to maintain, complete
and accurate books and records (including but not limited to records relating to
Accounts Receivable, Inventory, Equipment and other Collateral and property), in
which full and correct entries in conformity in all material respects with GAAP
shall be made of all dealings and transactions in relation to its respective
business and activities; permit, and cause each other Company to permit, access
by Agent and Lenders and their agents and employees to the books and records of
each Company at such Company's place or places of business at intervals to be
determined by Agent upon reasonable prior notice and during normal business
hours and without hindrance or delay; and permit and cause each other Company to
permit Agent and Lenders and their agents and employees to inspect Borrower's
Inventory and Equipment and each other Company's inventory and equipment, to
perform appraisals of Borrower's Equipment and each other Company's equipment
and to inspect, audit, check and make copies and/or extracts from the books,
records, computer data and records, computer programs, journals, orders,
receipts, correspondence and other data relating to Inventory, Accounts
Receivable, Equipment and any other Collateral and property or relating to any
other transactions between the parties hereto. So long as no Event of Default is
in existence and continuing, all audits, inspections and visits by Agent and
Lenders and/or their agents or employees shall be at intervals to be determined
by Agent upon reasonable prior notice and during normal business hours and
without hindrance or delay. Borrower shall not be liable for any costs and
expenses of such inspections, audits, visits or appraisals by Agent and Lenders
and their agents and employees unless an Event of Default exists.
5.6. Insurance.
----------
Maintain, and cause each Company to maintain, insurance to
such extent and against such hazards and liabilities as is commonly maintained
by companies similarly situated including, without limitation business
interruption insurance and product liability insurance, and
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<PAGE> 61
keep the Collateral insured for its full insurable value against loss or damage
by fire, theft, explosion, sprinklers and such other risks as are customarily
insured against by Persons engaged in business similar to that of the applicable
Company, with such companies, in such amounts and under policies in such form as
shall be reasonably satisfactory to Requisite Lenders. Certificates of such
policies of insurance in form and substance reasonably satisfactory to Agent
have been delivered to Agent prior to the date hereof together with evidence of
payment of all premiums therefor then due, and Agent and Lenders acknowledge
that as of the date hereof the same are satisfactory. Borrower shall cause each
issuer of an insurance policy to provide Agent, prior to the Closing Date, with
an endorsement or an independent instrument (i) containing such terms as shall
be reasonably acceptable to Agent, (ii) with respect to property and casualty
insurance, showing Agent, for the benefit of itself, Issuer and the Lenders, as
loss payee and, (iii) naming Agent, for the benefit of itself, Issuer and the
Lenders, and each Lender, as additional insured. Borrower hereby directs all
insurers under Borrower's policies of insurance to pay all proceeds payable
thereunder in respect of the Collateral directly to Agent, as its interest may
appear and applied to the Payment Liabilities, whether or not then due, in such
order of application as Agent may determine ;provided, that if no Event of
Default has occurred and is continuing, (A) proceeds of insurance for losses
equal to or less than Five Hundred Thousand Dollars ($500,000) per occurrence
shall be remitted by Agent to Borrower to repair, replace, restore or substitute
the damaged property, and (B) proceeds of insurance for losses in excess Five
Hundred Thousand Dollars ($500,000) per occurrence shall be applied to the
Payment Liabilities as provided herein, except that if Agent has received a
certificate from Borrower reasonably satisfactory to Requisite Lenders to the
effect that (i) such proceeds are necessary and in an amount sufficient,
together with any funds that may be contributed by Borrower, to pay all costs of
repair, replacement, restoration or substitution of such damaged property to an
economical unit of substantially the same character and value as such property
was prior to such damage, (ii) the damaged property can be repaired, replaced,
restored or substituted to an economical unit of substantially the same
character and value as such property was prior to such damage prior to the
termination of the Credit, and (iii) the inability to use such damaged property
during the period during which such damaged property is to be repaired,
replaced, restored or substituted is not reasonably likely to have a Material
Adverse Effect, such proceeds shall be held by Agent in the Assignee Deposit
Account to be disbursed from time to time to pay the cost of repair,
replacement, restoration or substitution either, at Requisite Lenders' option,
to Borrower or directly to contractors, subcontractors, and material suppliers
and subject to such conditions to disbursement as Requisite Lenders may
reasonably impose to assure that the work is fully completed in a good and
workmanlike manner and paid for and that no Liens arise by reason thereof.
Notwithstanding anything contained herein to the contrary, if an Event of
Default arises and continues after the occurrence of such loss, the amount of
proceeds with respect to such loss held by Agent in the Assignee Deposit Account
shall, at the request of Requisite Lenders, be applied by Agent to the Payment
Liabilities, whether or not then due, in such order of application as Agent may
determine. Borrower appoints Agent and any Person whom Agent may from time to
time designate (and all officers, employees or agents designated by Agent or
such Person) as Borrower's true and lawful attorney and agent in fact with
power, during the continuance of an Event of Default, to make, settle and adjust
claims under such policies of insurance, endorse the name of Borrower on any
check, draft, instrument or other item
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<PAGE> 62
of payment for the proceeds of such policies of insurance relating to the
Collateral which are payable to Agent or any Lender hereunder and make all
determinations and decisions with respect to such policies of insurance. The
foregoing appointment and power, being coupled with an interest, is irrevocable
until all Payment Liabilities under this Agreement are paid and performed in
full and this Agreement is terminated. In the event any Company at any time or
times hereafter shall fail to obtain or maintain any of the policies of
insurance required herein or to pay any premium in whole or in part relating
thereto when due, then Agent, without waiving or releasing any obligation of or
default by Borrower hereunder, may at any time or times thereafter (but shall be
under no obligation to do so) obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which Requisite
Lenders deem advisable. All sums so disbursed by Agent, including Attorneys'
Fees, court costs, expenses and other charges relating thereto, shall be payable
on demand by Borrower to Agent, and Agent may, in its sole and absolute
discretion, advance such sums to Borrower as a Revolving Loan.
5.7. Repair.
-------
Maintain, preserve and keep, and cause each other Company to
maintain, preserve and keep, its Equipment and other properties in good
operating condition and repair, ordinary wear and tear and casualty excepted;
and from time to time make, and cause each other Company to make, all reasonable
and proper repairs, renewals, replacements, additions, betterments and
improvements thereto and to such extent so that at all times the efficiency
thereof shall be fully preserved and maintained in all material respects.
5.8. Taxes.
------
Pay, and cause each other Company to pay, when due, all of its
Taxes, unless and only to the extent that such Company is contesting such Taxes
in good faith and by appropriate proceedings and such Company has set aside on
its books such reserves or other appropriate provisions therefor as may be
required by GAAP; not file a consolidated tax return together with any other
Person other than the other Companies and Holdings, unless consented to in
writing by Agent; not, and not permit any Subsidiary to, enter into any tax
sharing arrangement except as described on SCHEDULE 5.8; and not change, or
permit any other Company to change, its Fiscal Year or tax year without Agent's
prior written consent.
5.9. Compliance.
-----------
Comply, and cause each other Company to comply, with all
statutes and governmental rules and regulations applicable to it, except where
the failure to so comply would not be reasonably likely to have a Material
Adverse Effect.
5.10. Pension Plans.
--------------
Not permit, and not permit any other Company to permit, any
condition to exist in connection with any Pension Plan that would reasonably be
expected to constitute grounds for the PBGC to institute proceedings to have
such Pension Plan terminated or a trustee appointed to
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<PAGE> 63
administer such Pension Plan, which is reasonably likely to have a Material
Adverse Effect; not fail, and not permit any other Company to fail, to make a
required contribution to any Pension Plan if such failure is sufficient to give
rise to a Lien under Section 302(f) of ERISA; and not engage in, or permit to
exist or occur, or permit any other Company to engage in, or permit to exist or
occur, any other condition, event or transaction with respect to any Pension
Plan which could result in the incurrence by such Company of any liability, fine
or penalty, which is reasonably likely to have a Material Adverse Effect.
5.11. Merger, Purchase and Sale.
--------------------------
Not, and not permit any other Company to: (a) be a party to
any merger, liquidation or consolidation, except that any Subsidiary may merge
or consolidate with, or liquidate into, any other Subsidiary or merge or
consolidate with, or liquidate into, the Borrower; (b) except for sales of
Inventory in the normal course of its business and sales of Equipment permitted
pursuant to SECTION 3.4(a), sell, transfer, convey, lease or otherwise dispose
of any of its property, (c) sell or assign, with or without recourse, any
Accounts Receivable, notes receivable or chattel paper, except as provided in
this Agreement and (d) except for Permitted Acquisitions, purchase or otherwise
acquire all or substantially all of the assets or stock of any Person.
5.12. Restricted Payments.
--------------------
Except as contemplated in connection with the Acquisition, not
purchase or redeem, or permit any other Company to purchase or redeem, any
shares of its stock, declare or pay any distributions or dividends (other than
stock dividends) or set aside any funds for any such purpose or prepay, purchase
or redeem any Subordinated Debt or any of the Indebtedness evidenced by the
Senior Note Documents. Notwithstanding the foregoing, the provisions of SECTION
5.12 shall not prohibit: (a) the payment of any dividend by any Subsidiary to
Borrower; (b) the acquisition of any shares of Capital Stock of Borrower, either
(i) solely in exchange for shares of Capital Stock of Borrower or (ii) if no
Event of Default or Unmatured Event of Default shall have occurred and be
continuing, through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Borrower) of shares of
Capital Stock of Borrower; (c) if no Event of Default or Unmatured Event of
Default shall have occurred and be continuing, the acquisition, prepayment or
redemption of the Subordinated Debt or any Indebtedness evidenced by the Senior
Note Documents, either (i) solely in exchange for shares of Capital Stock of
Borrower or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Borrower) of shares of
Capital Stock of Borrower; (d) payments by Borrower to Holdings pursuant to and
in accordance with the Tax Sharing Agreement; (e) payments by Borrower to
Holdings to pay the reasonable out-of-pocket operating expenses incurred by
Holdings for the benefit of Borrower and in its capacity as holding company for
Borrower so long as the aggregate amount of such payments in any Fiscal Year
does not exceed One Hundred Thousand Dollars ($100,000); or (f) payments by
Borrower to redeem or repurchase or to enable Holdings to redeem or repurchase
Capital Stock of Borrower or Holdings, as the case may be, or Equity Interests
issued to or on behalf of directors, officers and employees of Borrower or any
of its Subsidiaries pursuant to Borrower's standard policy with respect to
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<PAGE> 64
employees of Borrower or its Subsidiaries who have died or become disabled or
whose employment has been terminated or pursuant to the terms of employment
contracts, other agreements or employee benefit plans of Holdings or any Company
so long as no Event of Default then exists or would be caused thereby and the
aggregate amount of such payments during any Fiscal Year does not exceed Three
Hundred Thousand Dollars ($300,000) (the "Annual Stock Repurchase Limit") and
during the term of this Agreement does not exceed Seven Hundred Fifty Thousand
Dollars ($750,000); provided, that if the payments by Borrower under clause (f)
in any Fiscal year do not exceed the Annual Stock Repurchase Limit, the
unutilized amount may be utilized solely in the succeeding Fiscal Year.
5.13. Stock.
------
Not take any action, or permit any other Company to take any
action, which would result in a decrease in any Company's ownership interest in
any Subsidiary.
5.14. Indebtedness.
-------------
Not, and not permit any other Company to, incur or permit to
exist any Indebtedness (including but not limited to Indebtedness as lessee
under Capitalized Leases and including any intercompany Indebtedness among the
Companies), except: (a) the Liabilities; (b) the Seller Subordinated Debt and
other Indebtedness of a Company having maturities and terms, and which is
subordinated to payment of the Liabilities, in a manner approved in writing by
Requisite Lenders; (c) Indebtedness of XPE GmbH and XPE Ltda. to Borrower in an
amount not to exceed Five Million Dollars ($5,000,000) at any time; (d) other
Indebtedness of XPE GmbH not to exceed Five Hundred Thousand Dollars ($500,000)
at any time; (e) Indebtedness of XPE Ltda. not to exceed Five Hundred Thousand
Dollars ($500,000) at any time; (f) other Indebtedness outstanding on the date
hereof and listed on SCHEDULE 5.14; (g) Indebtedness in connection with Liens
permitted under SECTION 5.15(C), so long as the aggregate amount of such
Indebtedness outstanding at any time does not exceed One Million Dollars
($1,000,000); (h) Indebtedness of any Subsidiary of Borrower to another
Subsidiary of Borrower; (i) Indebtedness arising from guarantees permitted by
SECTION 5.16; (j) Indebtedness arising from the repurchase of Common Stock or
Equity Interests if otherwise permitted under SECTION 5.12; (k) other
Indebtedness of a Company so long as the aggregate amount of such other
Indebtedness of the Companies outstanding at any time does not exceed Two
Hundred Fifty Thousand Dollars ($250,000) and (l) other Indebtedness approved in
writing by Requisite Lenders.
5.15. Liens.
------
Not, and not permit any other Company to, create or permit to
exist any Lien with respect to any property, revenue or assets now owned or
hereafter acquired, except: (a) Liens in favor of Agent, for the benefit of
itself, Issuer and Lenders; (b) without duplication, Liens referred to in
SECTION 4.9; (c) Liens in connection with the acquisition of fixed assets after
the date hereof by way of purchase money mortgage, conditional sale or other
title retention agreement, Capitalized Lease or other deferred payment contract,
and attaching only to the property being acquired, if the Indebtedness secured
thereby does not exceed one hundred percent of the fair
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<PAGE> 65
market value of such property at the time of the acquisition thereof and so long
as the Companies are in compliance with Section 5.26 after the acquisition of
such property; (d) Liens on the assets of XPE GmbH to secure the Indebtedness
permitted under SECTION 5.14(c) and SECTION 5.14(d); (e) Liens on the assets of
XPE Ltda. to secure the Indebtedness permitted under SECTION 5.14(c) and SECTION
5.14(e); (f) Liens filed in connection with one or more judgments entered
against any of the Companies, but only to the extent (i) the aggregate amount of
such judgments secured by Liens does not exceed Five Hundred Thousand Dollars
($500,000), (ii) such judgments have been stayed pending appeal, and (iii) a
bond or letter of credit has been posted in the full amount of such judgments;
(g) other Liens on the property of a Company (other than the Accounts Receivable
or Inventory of Borrower) so long as the aggregate amount secured by such Liens
does not exceed Two Hundred Fifty Thousand Dollars ($250,000); and (h) Liens
consented to in writing by Requisite Lenders.
5.16. Guaranties.
-----------
Not, and not permit any other Company to, become or be a
guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to, any undertaking of any other Person, except for (a)
the endorsement, in the ordinary course of collection, of instruments payable to
it or its order, (b) any guaranty of the Liabilities in favor of Agent, Issuer
and Lenders, (c) guarantees of loans and advances by third parties to employees
and officers of any Company for bona fide business purposes, provided that the
aggregate amount of such guarantees outstanding at any time does not exceed
$250,000; and (d) any guaranty by a Company of any Indebtedness of any other
Company (provided, that the aggregate amount of such guarantees by Borrower
outstanding at any time does not exceed Two Million Dollars ($2,000,000).
5.17. Investments.
------------
Not, and not permit any other Company to, make or permit to
exist any Investment in any Person, except for: (a) advances to employees of
such Company for travel or other ordinary business expenses provided that the
aggregate amount outstanding at any one time for all Companies shall not exceed
Two Hundred Fifty Thousand Dollars ($250,000); (b) Investments (other than
loans) outstanding on the date hereof and listed on SCHEDULE 5.17; (c)
extensions of credit in the nature of Accounts Receivable or notes receivable
arising from the sale of goods and services in the ordinary course of business;
(d) shares of stock, obligations or other securities received in settlement of
claims arising in the ordinary course of business; (e) Investments in Cash
Equivalent Investments; (f) Investments constituting loans by Borrower to XPE
GmbH and XPE Ltda. not to exceed Five Million Dollars ($5,000,000) at any time;
(g) Investments in securities of trade creditors or customers received pursuant
to any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (h) Investments in New
Subsidiaries permitted in connection with, and to the extent necessary to
consummate, Permitted Acquisitions; (i) Investments by Borrower or any
Subsidiary of Borrower in Persons not to exceed
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<PAGE> 66
One Million Dollars ($1,000,000) in the aggregate at any one time outstanding;
and (j) other Investments consented to by Requisite Lenders in writing.
5.18. Subsidiaries.
-------------
Not, and not permit any other Company to, acquire any stock or
similar interest in any Person or create, establish or acquire any Subsidiaries
other than those existing on the date of this Agreement or in connection with a
Permitted Acquisition.
5.19. Intentionally Omitted.
----------------------
5.20. Environmental Issues.
---------------------
Provide such information and certifications as Requisite
Lenders may reasonably request from time to time at reasonable intervals
pertaining to the environmental aspects of each Company and any property owned,
operated or controlled by any Company. In order to investigate environmental
aspects of each Company and its properties, facilities and operations, Agent and
its agents shall have the right at reasonable intervals during normal business
hours and upon reasonable notice to enter upon the property of such Company,
take samples (but only if an Event of Default exists and is continuing), review
the books, records or other documents of such Company, interview officers and
employees of such Company, and conduct such other activities as Requisite
Lenders, in their reasonable discretion, deems appropriate. Borrower shall, and
shall cause each other Company to, cooperate fully in the conduct of any such
investigation. If Requisite Lenders decide to cause any such investigation to be
conducted because of (a) Requisite Lenders' considering taking possession of or
title to the property during the continuance of an Event of Default or (b) a
material change in the use of the property, which in Requisite Lenders'
reasonable opinion, materially increases the risk of noncompliance with
Environmental Laws or materially increases the risk of cost or liabilities
thereunder, then Borrower shall pay upon demand all costs and expenses
(including Attorneys' Fees) connected with such investigation. Upon at least two
(2) Banking Days' advance notice to Borrower (or during the continuance of an
Event of Default, without notice to Borrower), Agent, may, in its discretion,
provide for the payment of any amount due from Borrower under this SECTION 5.20
by making a Revolving Loan to Borrower. Nothing in this SECTION 5.20, and no
actions taken by Agent or any Lender pursuant thereto, shall give, or be
construed as controlling, or giving to Agent or any Lender the right or
obligation to direct or control, the conduct or action or inaction of any
Company with respect to any environmental matters, including but not limited to
those pertaining to compliance with any Environmental Laws.
5.21. Related Agreements.
-------------------
After the date hereof, not enter into, or permit any other
Company to enter into, any agreement containing any provision which would be
violated or breached by the performance by such Company of its obligations
hereunder or under any Related Agreement or any instrument or document delivered
or to be delivered by such Company in connection herewith.
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<PAGE> 67
5.22. Unconditional Purchase Options.
-------------------------------
Not enter into or be a party to, or permit any other Company
to enter into or be a party to, any contract for the purchase of materials,
supplies or other property or services, if such contract requires that payment
be made by it regardless of whether or not delivery is ever made of such
materials, supplies or other property or services.
5.23. Use of Proceeds.
----------------
Not use or permit, or permit any other Company to use or
permit, any proceeds of the Loans or Letters of Credit to be used, either
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying" any Margin Stock, and furnish to Agent
upon request, a statement in conformity with the requirements of Federal Reserve
Form U-l referred to in Regulation U of the Board of Governors of the Federal
Reserve System.
5.24. Transactions with Related Parties.
----------------------------------
Not, and not permit any other Company to, enter into or be a
party to any other transaction or arrangement, including without limitation the
purchase, sale, lease or exchange of property or the rendering of any service,
with any Related Party, except in the ordinary course of such Company's business
and upon terms no less favorable to such Company than those that might
reasonably have been obtained in a comparable arm's-length transaction with a
Person not a Related Party. Notwithstanding the foregoing, the provisions of
this SECTION 5.24 shall not prohibit (i) reasonable fees paid to and indemnity
provided on behalf of, directors of Borrower or any of its Subsidiaries as
determined in good faith by Borrower's Board of Directors so long as the
aggregate amount of fees paid to directors in any Fiscal Year does not exceed
One Hundred Thousand Dollars ($100,000); (ii) payments permitted by SECTION
5.12; (iii) payments not to exceed Five Hundred Thousand Dollars ($500,000) in
any Fiscal Year made pursuant to the Advisory Services Agreement as of the date
hereof by and between Borrower and Kirtland Capital Corp., as in effect on the
Closing Date so long as an Event of Default is not in existence and continuing
or would be caused thereby; and (iv) payments made pursuant to and in accordance
with the Subordination Debt to the extent permitted under the Subordination
Agreement.
5.25. Amendment of Documents.
-----------------------
Not, and not permit any other Company to, amend, modify or
alter, or permit to be amended, modified or altered: (a) any of the Acquisition
Documents or Senior Note Documents if the effect of such amendment or
modification is to (i) increase the principal amount of Indebtedness evidenced
by any such documents, (ii) accelerate any date fixed for any payment of
principal or interest on the Indebtedness evidenced by any such documents, (iii)
increase the interest rate or any fees or charges, or add any fees or charges,
payable in connection with the Indebtedness evidenced by any such documents,
(iv) make any covenant, default or other provision contained therein more
restrictive on Borrower, or (v) amend or modify any provision of any such
documents in a manner adverse to Lenders; or (b) agreement, instrument or
document evidencing any of the Indebtedness listed on SCHEDULE 5.14.
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<PAGE> 68
5.26. Capital Expenditures Limitation.
--------------------------------
Not permit Capital Expenditures for the three (3) month period
ending December 31, 1996 to be greater than Four Million Five Hundred Thousand
Dollars ($4,500,000), and not permit Capital Expenditures in any Fiscal Year set
forth below to be greater than the amount set forth opposite such Fiscal Year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $9,000,000
1998 $5,000,000
1999 and each Fiscal Year thereafter $4,500,000
</TABLE>
5.27. Minimum Fixed Charge Coverage Ratio.
------------------------------------
Not permit Fixed Charge Coverage for the twelve (12) month
period ending the last day of each calendar quarter ending during the periods
(inclusive) set forth below to be less than the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
December 31, 1996 through September 30, 1998 1.40:1.00
December 31, 1998 through September 30, 1999 1.35:1.00
December 31, 1999 through September 30, 2000 1.05:1.00
December 31, 2000 and the last day of each 1.25:1.00
calendar quarter thereafter
</TABLE>
5.28. Minimum Net Worth.
------------------
Not permit Net Worth as of the last day of each calendar
quarter ending during the periods (inclusive) set forth below to be less than
the amount set forth opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
December 31, 1996 through March 31, 1997 Base Net Worth
June 30, 1997 through September 30, Base Net Worth +
</TABLE>
-63-
<PAGE> 69
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
1997 $1,200,000
December 31, 1997 through March 31, 1998 Base Net Worth + $2,400,000
June 30, 1998 through September 30, 1998 Base Net Worth + $4,500,000
December 31, 1998 through March 31, 1999 Base Net Worth + $6,600,000
June 30, 1999 through September 30, 1999 Base Net Worth + $9,900,000
December 31, 1999 through March 31, 2000 Base Net Worth + $13,200,000
June 30, 2000 through September 30, 2000 Base Net Worth + $17,250,000
December 31, 2000 through March 31, 2001 Base Net Worth + $21,300,000
June 30, 2001 and the last day of each Base Net Worth + $25,600,000
calendar quarter thereafter
</TABLE>
5.29. Maximum Leverage.
-----------------
Not permit the Leverage Ratio as of the last day of each
calendar quarter ending during the periods (inclusive) set forth below to be
more than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
December 31, 1996 through September 30, 1997 6.00:1.00
December 31, 1997 through September 30, 1998 6.00:1.00
December 31, 1998 through September 30, 1999 5.15:1.00
December 31, 1999 through September 4.45:1.00
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
30, 2000
December 31, 2000 and the last day of each 3.90:1.00
calendar quarter thereafter
</TABLE>
5.30. Minimum Interest Coverage Ratio.
--------------------------------
Not permit Interest Coverage for the twelve (12) month period
ending the last day of each calendar quarter ending during the periods
(inclusive) set forth below to be less than the ration set forth opposite such
period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
December 31, 1996 through September 30, 1998 1.50:1.00
December 31, 1998 through September 30, 1999 1.75:1.00
December 31, 1999 through September 30, 2000 2.00:1.00
December 31, 2000 and the last day of each 2.20:1.00
calendar quarter thereafter
</TABLE>
5.31. Collateral at Sales Offices.
----------------------------
Not permit the book value of the Collateral at the sales
offices referred to on SCHEDULE 4.12 to exceed Two Hundred Thousand Dollars
($200,000) at any time.
6. DEFAULT.
6.1. Event of Default.
-----------------
Each of the following shall constitute an Event of Default
under this Agreement:
(a) NON-PAYMENT. Default in the payment, when due or declared
due, of any amount of principal of any Loan, or default in the payment, within
three (3) days after the same shall become due, of any of the other Payment
Liabilities.
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. Default in the payment
when due, whether by acceleration or otherwise, after giving effect to the
expiration of any applicable grace period, if any, of any Indebtedness of, or
guaranteed by, any Company or any other Obligor with a principal balance
aggregating in excess of Four Hundred Thousand Dollars ($400,000) (other than
any Indebtedness under this Agreement and any Notes).
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<PAGE> 71
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
shall occur which, after giving effect to the expiration of any applicable grace
period, if any, either (i) results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, any Company or any other Obligor with a
principal balance in aggregating excess of Four Hundred Thousand Dollars
($400,000) (other than the Indebtedness under this Agreement and any Notes), or
(ii) enables the holder or holders of such other Indebtedness or any trustee or
agent for such holders to accelerate the maturity of such other Indebtedness.
(d) OTHER OBLIGATIONS. Default in the performance or
observance of any obligation or agreement (other than default in the payment
when due of Indebtedness) of any Company or any other Obligor to or with any
other Person involving an amount in excess of Four Hundred Thousand Dollars
($400,000) unless such default is being contested by such Company or such
Obligor, as the case may be, in good faith and by appropriate proceedings and
such Company or such Obligor, as applicable, shall have set aside on its books
such reserves or other appropriate provisions therefor as may be required by
GAAP, and so long as such default is not reasonably likely to have a Material
Adverse Effect.
(e) BANKRUPTCY. Any Company or any other Obligor applies for,
consents to, or acquiesces in the appointment of a trustee, receiver or other
custodian for such Company or such other Obligor, or for a substantial part of
the property of such Company or such other Obligor, or makes a general
assignment for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is appointed for
such Company or such other Obligor, or for a substantial part of the property of
such Company or such other Obligor and is not discharged or dismissed within
sixty (60) days; or any bankruptcy, reorganization, debt arrangement or other
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is instituted by such Company or such other Obligor; or,
in the absence of application, consent or acquiescence, any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceedings, is instituted
against such Company or such Obligor and is not discharged or dismissed within
sixty (60) days; or any warrant of attachment or similar legal process is issued
against any substantial part of the property of such Company or such other
Obligor.
(f) INSOLVENCY. Any Company or any other Obligor becomes
insolvent, or generally fails to pay, or admits in writing its inability to pay,
its debts as they mature.
(g) ERISA LIABILITIES. Any of the following events shall have
occurred, if such event is reasonably likely to have a Material Adverse Effect:
(i) the existence of a Reportable Event, (ii) the withdrawal of any Company or
any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the
occurrence of an obligation to provide affected parties with a written notice of
intent to terminate a Pension Plan in a distress termination under Section 4041
of ERISA, (iv) the institution by PBGC of proceedings to terminate any Pension
Plan, (v) any event or condition that would require the appointment of a trustee
to administer a Pension Plan, and (vi) the withdrawal of any Company or any
ERISA Affiliate from a Multiemployer Plan.
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(h) NON-COMPLIANCE WITH THIS AGREEMENT. Default in the
performance of any of the agreements set forth in SECTIONS 5.5 or 5.11 through
5.31 (and not constituting an Event of Default under any of the other
subsections of this SECTION 6.1); or default in the performance of any of the
agreements set forth in SECTION 5.1.1, 5.1.2, 5.1.3, 5.1.4, 5.2 or 5.6 (and not
constituting an Event of Default under any of the other subsections of this
SECTION 6.1), and continuance of such default for five (5) days after the
occurrence thereof; or default in the performance of any other agreements herein
set forth (and not constituting an Event of Default under any of the other
subsections of this SECTION 6.1), and continuance of such default for thirty
(30) days after the occurrence thereof.
(i) NON-COMPLIANCE WITH RELATED AGREEMENTS. Default in the
performance by any Company or any other Obligor of any of its agreements set
forth in any Related Agreement (and not constituting an Event of Default under
any of the other subsections of this SECTION 6.1), and continuance of such
default after notice from Agent and the expiration of the grace or cure period
(if any) set forth therein.
(j) NON-COMPLIANCE WITH SENIOR NOTE DOCUMENTS, SUBORDINATED
DEBT OR ACQUISITION Documents. An "Event of Default" as defined in the Senior
Note Documents shall occur or a default in the performance by any Company or any
other Obligor of any of its agreements set forth in any agreement, instrument or
document evidencing any Subordinated Debt or in any Acquisition Document (and
not constituting an Event of Default under any of the other subsections of this
SECTION 6.1), and continuance of such default after the expiration of the grace
or cure period (if any) set forth therein.
(k) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by any Company or any other Obligor herein (including without
limitation any representation or warranty contained in SECTION 3.2 or 3.3) or in
any Related Agreement is untrue or misleading in any material respect when made
or deemed made; or any schedule, statement, report, notice, certificate or other
writing furnished by any Company or any other Obligor to Agent or any Lender is
untrue or misleading in any material respect on the date as of which the facts
set forth therein are stated or certified; or any certification made or deemed
made by any Company or any other Obligor to Agent or any Lender is untrue or
misleading in any material respect on or as of the date made or deemed made.
(l) LITIGATION. There shall be entered against any of the
Companies and the other Obligors as a group one or more judgments or decrees
involving the payment of monies in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate at any one time outstanding, excluding those
judgments or decrees (i) that shall have been outstanding less than thirty (30)
calendar days from the entry thereof, (ii) for and to the extent which such
Company or such Obligor, as applicable, is insured and with respect to which the
insurer has assumed responsibility in writing or for and to the extent which
such Company or such Obligor, as applicable, is indemnified under the
Recapitalization Agreement or is otherwise indemnified, if the terms of such
other indemnification are satisfactory to Requisite Lenders or (iii) which have
been stayed pending appeal and with respect to which such Company or such
Obligor has posted any
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required bond or letter of credit and in connection with which no property of
any Company or any other Obligor has been attached.
(m) TERMINATION OF OBLIGATIONS. If any Obligor shall terminate
any of its obligations to Agent or any Lender in respect of the Liabilities
(except if such obligations terminate as the result of a merger, liquidation or
consolidation of a Subsidiary with or into Borrower).
(n) VALIDITY. If the validity or enforceability of this
Agreement, any Related Agreement or any Acquisition Document shall be challenged
by any Company, any other Obligor or any other Person, which challenge shall
remain for thirty (30) days undismissed, or if this Agreement, any Related
Agreement or any Acquisition Document shall fail to remain in full force and
effect (except if a Related Agreement fails to remain in effect as a result of
the merger, consolidation or liquidation of a Subsidiary with or into Borrower);
provided, that any challenge by any Person (other than a Company or Obligor) of
the validity or enforceability of the collateral assignment of any patent or
trademark not material to business of Borrower shall not constitute an Event of
Default..
(o) CONDUCT OF BUSINESS. If any Company or any other Obligor
is enjoined, restrained or in any way prevented by court order, which has not
been dissolved or stayed within ten (10) days, from conducting all or any
material part of its business affairs.
(p) EXCESS AVAILABILITY. If Excess Availability is less than
Ten Million Dollars ($10,000,000) after giving effect to any principal payment
in respect of the Seller Subordinated Debt.
(q) MATERIAL ADVERSE CHANGE. A Material Adverse Change shall
have occurred.
(r) CHANGE OF CONTROL. Any Change of Control (as defined in
the Senior Note Documents as in effect on the Closing Date) shall have occurred.
6.2. Effect of Event of Default; Remedies.
-------------------------------------
(a) In the event that one or more Events of Default described
in SECTION 6.1(e) shall occur and be continuing, then each Lender's commitment
and the Credit extended under this Agreement shall terminate and all Liabilities
hereunder and under any Notes shall be immediately due and payable without
demand, notice or declaration of any kind whatsoever.
(b) In the event an Event of Default other than one described
in SECTION 6.1(e) shall occur and be continuing, at the option of Requisite
Lenders, each Lender's commitment shall terminate and all Liabilities hereunder
and under any Notes shall immediately be due and payable without demand or
notice of any kind whatsoever, whereupon the Credit extended under this
Agreement shall terminate. Agent shall promptly advise Borrower of any such
declaration, but failure to do so shall not impair the effect of such
declaration.
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(c) In the event of the occurrence and continuance of any
Event of Default, Agent may, and at the request of Requisite Lenders shall,
exercise any one or more or all of the following remedies, all of which are
cumulative and non-exclusive:
(i) Any remedy contained in this Agreement or in any of the
Related Agreements or any Supplemental Documentation;
(ii) Any rights and remedies available to Agent or any Lender
under the UCC, and any other applicable law;
(iii) To the extent permitted by applicable law, Agent may,
without notice, demand or legal process of any kind, take possession of
any or all of the Collateral (in addition to Collateral which it may
already have in its possession), wherever it may be found, and for that
purpose may pursue the same wherever it may be found, and may enter
into any premises where any of the Collateral may be or is supposed to
be, and search for, take possession of, remove, keep and store any of
the Collateral until the same shall be sold or otherwise disposed of,
and Agent shall have the right to store the same in any of Borrower's
premises without cost to Agent;
(iv) At Agent's request, Borrower will, at Borrower's expense,
assemble the Collateral and make it available to Agent at a place or
places to be designated by Agent which is reasonably convenient to
Agent and Borrower; and
(v) Agent at its option, and pursuant to notification given to
Borrower as provided for below, may sell any Collateral actually or
constructively in its possession at public or private sale and apply
the proceeds thereof as provided below.
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S RIGHTS.
7.1. Notice of Disposition of Collateral.
------------------------------------
Any notification of intended disposition of any of the
Collateral required by law shall be deemed reasonably and properly given if
given at least five (5) calendar days before such disposition.
7.2. Application of Proceeds of Collateral.
--------------------------------------
During the continuance of an Event of Default, any proceeds of
the Collateral may be applied by Agent to the payment of expenses in connection
with the taking possession of, storing, preparing for sale, and disposition of
Collateral, including Attorneys' Fees and legal
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expenses, and any balance of such proceeds may be applied by Agent toward the
payment of such of the Payment Liabilities, and in such order of application, as
Agent may from time to time elect.
7.3. Care of Collateral.
-------------------
Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if it takes such
action for that purpose as Borrower requests in writing, but failure of Agent to
comply with such request shall not, of itself, be deemed a failure to exercise
reasonable care, and no failure of Agent to preserve or protect any rights with
respect to such Collateral against prior parties, or to do any act with respect
to the preservation of such Collateral not so requested by Borrower, shall be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
7.4. Performance of Borrower's Obligations.
--------------------------------------
During the continuance of an Event of Default, Agent shall
have the right, but shall not be obligated, to discharge any claims or Liens
against, and any Taxes at any time levied or placed upon any or all Collateral,
including without limitation those arising under statute or in favor of
landlords, taxing authorities, government, public and/or private warehousemen,
common and/or private carriers, processors, finishers, draymen, coopers, dryers,
mechanics, artisans, laborers, attorneys, courts, or others. During the
continuance of an Event of Default, Agent may also pay for maintenance and
preservation of Collateral. Agent may, but is not obligated to, perform or
fulfill any of Borrower's responsibilities under this Agreement which Borrower
has failed to perform or fulfill. Agent may advance to Borrower as a Revolving
Loan any payment made or expense incurred under this SECTION 7.4.
7.5. Agent's Rights.
---------------
None of the following shall affect the obligations of any
Company or any other Obligor to Agent or any Lender under this Agreement or
Agent's right with respect to the remaining Collateral (any or all of which
actions may be taken by Agent at any time, whether before or after an Event of
Default, at its sole and absolute discretion and without notice to Borrower):
(a) acceptance or retention by Agent or any Lender of other
property or interests in property as security for the Liabilities, or acceptance
or retention of any Obligor(s), in addition to Borrower, with respect to any of
the Liabilities;
(b) release of its Lien on, or surrender or release of, or the
substitution or exchange of or for, all or any part of the Collateral or any
other property securing any of the Liabilities (including but not limited to any
property of any Obligor other than Borrower), or any extension or renewal for
one or more periods (whether or not longer than the original period), or
release, compromise, alteration or exchange, of any obligations of any guarantor
or other Obligor with respect to any Collateral or any such property;
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(c) extension or renewal for one or more periods (whether or
not longer than the original period), or release, compromise, alteration or
exchange of any of the Liabilities, or release or compromise of any obligation
of any Obligor with respect to any of the liabilities; or
(d) failure by Agent or any Lender to resort to other security
or pursue any Person liable for any of the Liabilities before resorting to the
Collateral.
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS.
8.1. Conditions Precedent to Initial Loans and Letters of Credit.
------------------------------------------------------------
The obligation of each Lender that is a party to this
Agreement on the date hereof to make the initial Loans and for Issuer to issue
the initial Letters of Credit, if any, is subject to satisfaction of the
following conditions precedent (in addition to those provided in SECTION 8.2):
8.1.1. Audit.
------
Agent and Lenders shall have completed their due diligence
audit of the business, operations and assets of Borrower and each other Company,
the results of which shall provide Agent and Lenders with results and
information which, in their sole determination are satisfactory to permit them
to enter into the secured financing transaction described in this Agreement and
the Related Agreements.
8.1.2. Security Interest.
------------------
The security interest in the Collateral granted under this
Agreement and the Related Agreements, and all other Liens granted to Agent, for
the benefit of itself, Issuer and Lenders, to secure the Liabilities, shall be a
senior, perfected Lien except as otherwise agreed by Requisite Lenders or as
otherwise permitted herein, and all financing statements and other documents
relating to Collateral shall have been filed or recorded, as appropriate.
8.1.3. Litigation.
-----------
No material litigation shall have been instituted against
Holdings, any Company or Sellers relating to the transactions contemplated by
the Recapitalization Agreement or this Agreement.
8.1.4. Solvency.
---------
After giving effect to the initial Loans made hereunder and
the initial Letters of Credit issued hereunder, Borrower shall have sufficient
assets having a value, both at present fair salable value and at fair valuation,
greater than the amount of Borrower's liabilities (including trade debt and
Indebtedness to Lenders). Lenders shall be satisfied that all of the assets
supporting the Loans and Letters of Credit under this Agreement shall be
sufficient in value to provide Borrower
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with sufficient cash flow and working capital to enable it to profitably operate
its business and to meet its obligations as they become due.
8.1.5. Loan Availability.
------------------
Immediately after making the initial Loans (and after giving
effect to the payment of all fees and expenses incurred, or to be incurred, by
Borrower), Borrower shall, under the terms and conditions of this Agreement,
have Excess Availability of at least Twelve Million Dollars ($12,000,000).
8.1.6. Equity and Subordinated Debt Investment in Borrower.
----------------------------------------------------
Holdings shall have received contributions to capital from its
shareholders of at least Twenty-Seven Million Dollars ($27,000,000) in cash and
Holdings shall have contributed to Borrower cash of at least Seventeen Million
Dollars ($17,000,000) in exchange for Borrower's common stock and Ten Million
Dollars ($10,000,000) shall be paid by Holdings to Sellers to satisfy its
obligations with respect to the non-competition agreement executed in connection
with the Acquisition Agreement.
8.1.7. Senior Notes.
-------------
Borrower shall have issued the Senior Notes pursuant to the
Senior Note Documents, the terms of which shall be acceptable to Lenders, and
Borrower shall have received net cash proceeds of at least One Hundred Million
Dollars ($100,000,000) in exchange therefor (less any underwriting discount).
8.1.8. Effect of Law.
--------------
No law or regulation affecting Agent's or any Lender's
entering into the secured financing transaction contemplated by this Agreement
shall impose upon Agent or any Lender any material obligation, fee, liability,
loss, cost, expense or damage.
8.1.9. Exhibits; Schedules.
--------------------
All Exhibits and Schedules to this Agreement shall have been
completed and submitted to Agent and Lenders, shall be in form and substance
satisfactory to Agent and Lenders and shall contain no facts or information
which Agent and Lenders, in their sole judgment, determine to be unacceptable.
8.1.10. Environmental Audit.
--------------------
Agent and Lenders shall have received environmental assessment
reports with respect to Borrower's owned and leased real property from an
environmental engineering firm acceptable to Agent, which assessments shall not
disclose any facts or information which Agent and Lenders, in their sole
judgment, determine to be unacceptable.
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8.1.11. Acquisition.
------------
The Acquisition shall have been consummated in accordance with
the terms of the Recapitalization Agreement and any other applicable documents
and in full compliance with applicable laws.
8.1.12. Fees.
-----
Lenders shall have received the closing fee referred to in the
Fee Letter and any other fees due and payable by Borrower on the funding of the
initial Loans and issuing the initial Letters of Credit.
8.1.13. Documents.
----------
Lenders shall have received all documents as Lenders shall
determine to be necessary and desirable, including without limitation, the
following documents, each duly executed where appropriate and dated as of the
date of the initial Loan (or such other date as shall be satisfactory to Agent),
in form and substance satisfactory to Agent:
(a) BORROWER RESOLUTIONS. A copy, duly certified by the
secretary or an assistant secretary of Borrower of (1) resolutions of the Board
of Directors of Borrower authorizing (A) the borrowings by Borrower hereunder,
(B) the execution, delivery and performance by Borrower of this Agreement, the
Notes, and each other Related Agreement to which Borrower is a party or by which
it is bound, and (C) certain officers or employees of Borrower to request
borrowings by telephone and to execute Borrowing Base Certificates, (2) all
documents evidencing any other necessary corporate action with respect to this
Agreement and the Related Agreements, and (3) all approvals or consents, if any,
with respect to this Agreement and the Related Agreements;
(b) BORROWER INCUMBENCY CERTIFICATE. A certificate of the
secretary of Borrower certifying the names of the officers of Borrower
authorized to sign this Agreement, the Notes, and each other Related Agreement
to which Borrower is a party or by which it is bound, and all other documents
and certificates to be delivered by Borrower hereunder, together with the true
signatures of such officers;
(c) REAL PROPERTY. With respect to the real property located
at 2351 Whirlpool Street, Niagara Falls, New York and 54401 Smilax Road, New
Carlisle, Indiana:
(i) A Mortgage executed by Borrower;
(ii) An ALTA Loan Title Insurance Policy acceptable to Agent
and insuring Agent's Lien in an amount and with a title insurance
company acceptable to Agent and containing such endorsements as set
forth on SCHEDULE 8.1(C). The amount of coverage, exceptions to
coverage and status of title set forth in the policy shall be
acceptable to Agent;
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(iii) Copies of all documents of record concerning the real
property as shown on the commitment for the ALTA Loan Title Insurance
Policy;
(iv) An ALTA survey, certified in favor of Agent and the title
company; and
(v) If the real property is in a flood hazard area, flood
insurance, with standard noncontributory mortgagee clauses or
endorsement in favor of Agent and Lenders. The amount, terms of
coverage and insurer shall be reasonably acceptable to Agent;
(d) BORROWER'S CERTIFICATE. The certificate of the President
or Chief Financial Officer of Borrower certifying to the fulfillment of all
conditions precedent to closing and funding the secured financing transaction
contemplated by this Agreement and to the truth and accuracy, as of such date,
of the representations and warranties of Borrower contained in this Agreement,
and each Related Agreement to which Borrower is a party or by which it is bound;
(e) BY-LAWS. A copy, duly certified by the secretary or an
assistant secretary of Borrower, of the by-laws.
(f) BORROWER'S REGISTRATION; GOOD STANDING. A copy, duly
certified by the applicable Secretary of State, of (i) a certificate of good
standing issued by the Secretary of the State of Delaware and each other state
where Borrower is qualified to do business or where, because of the nature of
its business or properties, qualification to do business is required, (ii) a
certificate of qualification, registration to do business or other documents
required to be filed by Borrower to qualify to do business in each state
referred to in clause (i), and (iii) in any state in which Borrower is doing
business under an assumed name, a certificate or other document issued by the
Secretary of State of each such state evidencing Borrower's authority to use
such name;
(g) INSURANCE. Evidence satisfactory to Agent of the existence
of insurance on the Collateral and business of Borrower in amounts and with
insurers acceptable to Agent, together with evidence establishing that Agent is
named as a loss payee and/or additional insured, as applicable, as provided in
SECTION 5.6;
(h) DISBURSEMENT LETTER. Written authorization and
instructions from Borrower, in form satisfactory to Agent, for disbursement of
the proceeds of the initial Loans;
(i) OTHER RELATED AGREEMENTS. The other Related Agreements
(including without limitation the Subordination Agreement);
(j) SELLERS' DOCUMENTS. An Opinion of Sellers' counsel,
addressed to Agent and Lenders or upon which Agent and Lenders are expressly
permitted to rely;
(k) HOLDINGS' BY-LAWS. A copy, duly certified by the secretary
or an assistant secretary of Holdings, of Holdings' by-laws;
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(l) HOLDINGS' ARTICLES. A copy, duly certified by the
Secretary of State of Delaware, of Holdings, of Holdings' Certificate of
Incorporation;
(m) HOLDINGS' REGISTRATION; GOOD STANDING. A copy, duly
certified by the applicable Secretary of State of (i) a certificate of good
standing issued by the Secretary of the State of Delaware and each other state
where Holdings is qualified to do business or where, because of the nature of
its business or properties, qualification to do business is required, (ii) a
certificate of qualification, registration to do business or other documents
required to be filed by Holdings to qualify to do business in each state
referred to in clause (i), and (iii) in any state in which Holdings is doing
business under an assumed name, a certificate or other document issued by the
Secretary of State of each such state evidencing Holdings' authority to use such
name;
(n) LEGAL OPINION. Legal opinion from counsel for Borrower in
form and substance satisfactory to Agent; and
(o) OTHER DOCUMENTS. Such other documents as Agent and Lenders
shall determine to be necessary or desirable.
8.2. Continuing Conditions Precedent to all Loans; Certification.
------------------------------------------------------------
The obligation of each Lender to make the initial Loans and
each subsequent Loan and to establish any LIBOR Rate Loans and/or for Issuer to
issue the initial Letters of Credit and each subsequent Letter of Credit, is
subject to satisfaction of the following conditions precedent in addition to
those provided in SECTION 8.1:
(a) NO CHANGE IN CONDITION. No change in the assets, condition
or operations, financial or otherwise, of any Company or any other Obligor,
shall have occurred which change, in the reasonable credit judgment of Requisite
Lenders, is reasonably likely to have a Material Adverse Effect.
(b) DEFAULT. Before and after giving effect to such Loan
and/or Letter of Credit, no Event of Default or Unmatured Event of Default shall
have occurred and be continuing.
(c) REPRESENTATIONS AND WARRANTIES. Before and after giving
effect to such Loan and/or Letter of Credit, the representations and warranties
in SECTION 4 or incorporated in this Agreement by reference pursuant to SECTION
4.26 shall be true and correct in all material respects as though made on the
date of such Loan and/or Letter of Credit.
Each request for a Loan or Letter of Credit hereunder made or deemed to have
been made by Borrower shall be deemed to be a certificate of Borrower as to the
matters set out in the foregoing provisions of this SECTION 8.2.
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9. INDEMNITY.
9.1. Environmental and Safety and Health Indemnity.
----------------------------------------------
Borrower hereby indemnifies and agrees to hold Agent and each
Lender, and the officers, directors, employees, agents and affiliates of each of
Agent and each Lender (collectively, the "Indemnitees") harmless from and
against any and all losses, liabilities, damages, injuries, costs, claims and
reasonable expenses of any and every kind whatsoever (including without
limitation court costs and Attorneys' Fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, any of such
Indemnitees for, with respect to, or as a direct or indirect result of the
violation by, any Company of any Environmental Law or Occupational Safety and
Health Law, or with respect to, or as a direct or indirect result of (a) the
presence on or under, or the Release from, properties utilized by such Company
in the conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or the escape,
seepage, leakage, spillage, disposal, discharge, emission or release of any
other hazardous or toxic waste, substance or constituent, or other substance
(including without limitation any losses, liabilities, damages, injuries, costs,
claims or reasonable expenses asserted or arising under any Environmental Law)
or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by such Company in the conduct of its business; provided, that
Borrower shall not have any obligation to any Indemnitee hereunder with respect
to indemnified liabilities arising from any Indemnitee's gross negligence or
willful misconduct. The provisions of and undertakings and indemnification set
out in this SECTION 9.1 shall survive satisfaction and payment of the
Liabilities and termination of this Agreement.
9.2. General Indemnity.
------------------
In addition to the payment of expenses pursuant to SECTION
11.3, whether or not the transactions contemplated hereby shall be consummated,
Borrower hereby indemnifies and agrees to hold each Indemnitee harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, and reasonable expenses of any kind or
nature whatsoever (including without limitation the reasonable fees and
disbursements of counsel, and, without duplication, the allocated cost of
in-house counsel, for any of such Indemnities in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not any of such Indemnities shall be designated a party thereto) that
may be imposed on, incurred by, or asserted against any Indemnitee, in any
manner relating to or arising out of this Agreement or any Related Agreement,
Agent's or any Lender's agreement to make the Loans or issue the Letters of
Credit hereunder, or the use or intended use of any of the Loans or Letters of
Credit hereunder or proceeds thereof (the "indemnified liabilities"); provided,
that Borrower shall not have any obligation to an Indemnitee hereunder with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of such Indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it violates any law or public policy, Borrower shall contribute the
maximum portion that it is permitted to pay under applicable law to the payment
and satisfaction of all indemnified liabilities incurred by the Indemnities or
any of them.
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The provisions of the undertakings and indemnification set out
in this SECTION 9.2 shall survive satisfaction and payment of the Liabilities
and termination of this Agreement.
9.3. Capital Adequacy.
-----------------
If Agent or any Lender shall reasonably determine that the
application or adoption after the date hereof of any law, rule, regulation,
directive, interpretation, treaty or guideline regarding capital adequacy, or
any change therein or in the interpretation or administration thereof, whether
or not having the force or law (including without limitation application of
changes to Regulation H and Regulation Y of the Federal Reserve Board issued by
the Federal Reserve Board on January 19, 1989 and regulations of the Comptroller
of the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued
by the Comptroller of the Currency on January 27, 1989) increases the amount of
capital required or expected to be maintained by Agent or such Lender or any
Person controlling Agent or such Lender in excess of the amount required as of
the date hereof, and such increase is based upon the existence of Agent's or
such Lender's obligations hereunder and other commitments of this type, then
from time to time, within thirty (30) days after demand from Agent or such
Lender, Borrower shall pay to Agent or such Lender, as applicable, such amount
or amounts as will compensate Agent or such Lender or such controlling Person,
as the case may be, for such increased capital requirement. The determination of
any amount to be paid by Borrower under this SECTION 9.3 shall take into
consideration the policies of Agent or such Lender or any Person controlling
Agent or such Lender with respect to capital adequacy and shall be based upon
any reasonable averaging, attribution and allocation methods. A certificate of
Agent or such Lender, as applicable, setting forth the amount or amounts as
shall be necessary to compensate Agent or such Lender as specified in this
SECTION 9.3 shall be delivered to Borrower and shall be conclusive in the
absence of manifest error.
10. AGENT.
10.1. Appointment of Agent.
---------------------
Each Lender hereby irrevocably appoints and authorizes BAI to
act as its Agent under this Agreement and the Related Agreements. Each Lender
hereby irrevocably appoints and authorizes Agent to take such action on such
Lender's behalf under the provisions of this Agreement and the Related
Agreements and to exercise such powers and perform such duties under this
Agreement and the Related Agreements as are specifically delegated to Agent by
the terms hereof and thereof, together with such other powers as are reasonably
incidental hereto and thereto. Agent may perform any of its duties hereunder or
under the Related Agreements by or through its agents or employees. The
provisions of this SECTION 10 are solely for the benefit of Agent and Lenders,
and neither Borrower nor any other Obligor shall have any rights as a third
party beneficiary of any of the provisions hereof. In performing its functions
and duties under this Agreement and the Related Agreements, Agent shall act
solely as agent of Lenders and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for
Borrower or any other Obligor.
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10.2. Nature of Duties of Agent.
--------------------------
Agent shall have no duties, obligations or responsibilities
except those expressly set forth in this Agreement and the Related Agreements.
Neither Agent nor any of its officers, directors, employees or agents shall be
liable for any action taken or omitted by it as such hereunder or under the
Related Agreements or in connection herewith or therewith, unless caused by its
or their gross negligence or willful misconduct. The duties of Agent shall be
mechanical and administrative in nature; Agent shall not have by reason of this
Agreement or the Related Agreements a fiduciary relationship in respect of any
Lender; and nothing in this Agreement or the Related Agreements, expressed or
implied, is intended to or shall be so construed as to impose upon Agent any
obligations in respect of this Agreement or the Related Agreements except as
expressly set forth herein or therein. No duty to act, or refrain from acting,
and no other obligation whatsoever, shall be implied on the basis of or imputed
in respect of any right, power or authority granted to Agent or shall become
effective in the event of any temporary or partial exercise of such rights,
power or authority.
10.3. Agent in its Capacity as Lender.
--------------------------------
With respect to its obligations under this Agreement and the
Related Agreements, and the Loans made by it, Agent shall have the same rights
and powers under this Agreement and the Related Agreements as any Lender and may
exercise the same as though it were not Agent, and the terms "Lender" or
"Lenders" shall, unless the context otherwise indicates, include Agent in its
capacity as a Lender hereunder. Agent, any Lender and their respective
affiliates may accept deposits from, lend money to, and generally engage in any
kind of banking or trust business with Borrower or any other Obligor, or Related
Parties of Borrower, as if it were not Agent or as if it or they were not a
Lender hereunder and without any duty to account therefor to the other parties
to this Agreement; provided, that the obligations of Borrower under such
transactions shall not be deemed to be Liabilities or secured by any Collateral
without the prior written agreement of the Requisite Lenders; provided, further,
that Lenders acknowledge and agree that the obligations of Borrower with respect
to the Letter of Credit Obligations, and to BAI or any other Lender and with
respect to any lockbox or bank account maintained by or for the benefit of
Borrower, including the Demand Deposit Accounts, the Depository Accounts and the
Assignee Deposit Accounts, shall be deemed to be Liabilities secured by the
Collateral.
10.4. Independent Credit Analysis.
----------------------------
Each Lender agrees that it has, independently and without
reliance upon Agent, any other Lender, or the directors, officers, agents,
attorneys or employees of Agent or of any other Lender, and instead in reliance
upon information supplied to it by or on behalf of Borrower and each other
Obligor, made its own independent credit analysis and decision to enter into
this Agreement and the Related Agreements to which it is a party, and that it
shall independently and without reliance upon Agent, any other Lender, or the
directors, officers, agents, attorneys or employees of Agent or of any other
Lender, continue to make its own independent credit analysis and decisions in
acting or not acting under this Agreement and the Related Agreements. Except as
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otherwise expressly provided herein, Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information concerning the affairs, financial
condition, litigation, liabilities, or business of Borrower or any other Obligor
which may at any time come into the possession of Agent (or any of its
affiliates). In the event such information is furnished to any Lender by Agent,
Agent shall have no duty to confirm or verify its accuracy or completeness and
shall have no liability whatsoever with respect thereto.
10.5. General Immunity.
-----------------
Neither Agent nor any of its directors, officers, agents,
attorneys or employees shall be liable to any Lender for any action taken or
omitted to be taken by it or them under this Agreement or the Related Agreements
or in connection herewith or therewith except for its or their own willful
misconduct or gross negligence. Without limiting the generality of the
foregoing, Agent: (i) shall not be responsible to Lenders for any recitals,
statements, warranties or representations under this Agreement or the Related
Agreements or any agreement or document relative hereto or thereto or for the
financial or other condition of any Obligor, (ii) shall not be responsible for
the authenticity, accuracy, completeness, value, validity, effectiveness, due
execution, legality, genuineness, enforceability, collectibility or sufficiency
of this Agreement or the Related Agreements or any other agreements or any
assignments, certificates, requests, financial statements, projections, notices,
schedules or opinions of counsel executed and delivered pursuant hereto or
thereto, (iii) shall not be bound to ascertain or inquire as to the performance
or observance of any of the terms, covenants or conditions of this Agreement or
the Related Agreements on the part of Obligors or of any of the terms of any
such agreement by any party hereto or thereto and shall have no duty to inspect
the property (including the books and records) of any Obligor, (iv) shall have
no obligation whatsoever to Lenders or to any other Person to assure that the
Collateral exists or is owned by Borrower or any other Obligor or is cared for,
protected or insured or that the Liens granted to Agent herein or in Related
Agreements or pursuant hereto or thereto have been properly or sufficiently or
lawfully created, perfected, protected, enforced, realized upon or are entitled
to any particular priority, and (v) shall incur no liability under or in respect
of this Agreement or the Related Agreements or any other document by acting upon
any telephone or written notice, consent, certificate or other instrument or
writing (which may be by telegram, cable, telex, telecopier or similar form of
facsimile transmission), telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons. Agent may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by Agent and shall not be liable for any action taken or
omitted to be taken in good faith in accordance with the advice of such counsel,
accountants or experts.
10.6. Action by Agent.
----------------
(a) ACTUAL KNOWLEDGE. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Unmatured Event of Default or Event
of Default, except with respect to defaults in the payment of principal,
interest and fees required to be paid to Agent for the account of Lenders,
unless Agent shall have received written notice from a Lender, Borrower or
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Borrower's independent certified public accountants referring to this Agreement,
describing such Unmatured Event of Default or Event of Default and stating that
such notice is a "notice of default." Agent will notify Lenders of its receipt
of any such notice.
(b) DISCRETION TO ACT. Agent shall have the right to request
instructions from Requisite Lenders by notice to each Lender. If Agent shall
request instructions from Requisite Lenders with respect to any act or action
(including the failure to act) in connection with this Agreement or any Related
Agreement, Agent shall be entitled to refrain from such act or taking such
action unless and until Agent shall have received instructions from Requisite
Lenders, and Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against Agent as a result of Agent acting or refraining from
acting hereunder or under any Related Agreement in accordance with the
instructions of Requisite Lenders. Agent may give any notice required under
SECTION 6 hereof without the consent of any of Lenders unless otherwise directed
by Requisite Lenders in writing and will, at the direction of Requisite Lenders,
give any such notice required under SECTION 6. Except for any obligation
expressly set forth in this Agreement or the Related Agreements, Agent may, but
shall not be required to, exercise its discretion to act or not act, except that
Agent shall be required to act or not act upon the instructions of Requisite
Lenders (unless all of Lenders are required to provide such instructions as
provided in SECTION 11.6) and those instructions shall be binding upon Agent and
all Lenders; provided, that Agent shall not be required to act or not act if to
do so would, in Agent's opinion, expose Agent to liability or would be contrary
to this Agreement or any Related Agreements or to applicable law.
(c) SATISFACTION OF CONDITIONS. For purposes of determining
compliance with the conditions specified in SECTION 8.1, each Lender that has
executed this Agreement shall be deemed to have consented to, approved or
accepted or to be satisfied with, each document or other matter either sent by
Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender.
10.7. Right to Indemnity.
-------------------
Agent shall be fully justified in failing or refusing to take
any action under this Agreement or the Related Agreements or in relation hereto
or thereto unless it shall first be indemnified (upon requesting such
indemnification) to its satisfaction by Lenders against any and all liability
and expense which it may incur by reason of taking or continuing to take any
such action. Lenders further agree to indemnify Agent ratably in accordance with
their Pro Rata Shares for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against Agent in any way relating to or arising out of this Agreement or the
other Related Agreements or the transactions contemplated hereby or thereby, or
the enforcement of any of the terms hereof or thereof or of any other documents;
provided no such liability, obligation, loss, damage, penalty, action, judgment,
suit, cost, expense or disbursement results from Agent's gross negligence or
willful misconduct. Each Lender agrees to reimburse Agent in the amount of its
Pro Rata Share of any out-of-pocket expenses for which Agent is entitled to
receive, but has not
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received, reimbursement pursuant to this Agreement. The agreements in this
SECTION 10.7 shall survive the payment and fulfillment of the Liabilities and
termination of this Agreement.
10.8. Rights and Remedies to be Exercised by Agent Only.
--------------------------------------------------
In the event any remedy may be exercised with respect to this
Agreement or the Related Agreements or the Collateral, Agent shall pursue
remedies designated by Requisite Lenders subject to the proviso set forth in
SECTION 10.6(b). Each Lender agrees that no Lender shall have any right
individually (a) to realize upon the security created by this Agreement or the
Related Agreements, (b) enforce any provision of this Agreement or the Related
Agreements, or (c) make demand under this Agreement or the Related Agreements;
provided, that any Lender that is an Issuer may make demand upon Borrower as
Issuer pursuant to SECTION 2.2, BAI may make demand upon Borrower pursuant to
SECTION 11.4.
10.9. Agent's Resignation.
--------------------
Agent may, and at the request of Requisite Lenders shall,
resign as Agent upon thirty (30) days notice to Lenders. If Agent resigns under
this Agreement, Requisite Lenders shall appoint from among Lenders a successor
agent for Lenders. If no successor agent is appointed prior to the effective
date of the resignation of Agent, Agent may appoint, with the consent of
Borrower, which consent will not be unreasonably withheld or delayed, and after
consulting with Lenders, a successor agent from among Lenders. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this SECTION 10 and
SECTIONS 11.3 and 11.4 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is thirty
(30) days following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective and Lenders
shall perform all of the duties of Agent hereunder until such time, if any, as
Requisite Lenders appoint a successor agent as provided for above.
10.10. Disbursement of Proceeds of Loans and Other Advances.
-----------------------------------------------------
Agent may (and is hereby irrevocably authorized by Lenders),
but shall have no duty to make such other disbursements and advances as
Revolving Loans on behalf of Lenders, including without limitation the making of
advances for the expenditures described in SECTION 7.4 of this Agreement, which
Agent, in its sole discretion, deems necessary or desirable to preserve or
protect the Collateral, or any portion thereof. Agent's use of its own checks
upon its funds or Agent's transfer of its own funds, by wire or otherwise, to an
account of Borrower or any other Obligor shall be deemed to be disbursements
made by each Lender under this Agreement and pursuant to the Related Agreements.
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10.11. Release of Collateral.
----------------------
Each Lender hereby irrevocably authorizes Agent, at its option
and in its discretion, to release any and all guaranties of the Liabilities and
any Lien granted to or held by Agent upon any Collateral (i) upon termination of
Lenders' obligations to make Loans and payment and satisfaction of all Loans,
Letter of Credit Obligations and all other Payment Liabilities and which Agent
has been notified in writing are then due and payable under this Agreement; (ii)
constituting Collateral being sold or disposed of if Borrower certifies to Agent
that the sale or disposition is made in compliance with the terms of this
Agreement (and, absent any actual knowledge of Agent to the contrary, Agent may
rely conclusively on any such certificate, without further inquiry); (iii)
constituting property in which neither Borrower nor any Obligor has any interest
at the time the Lien was granted and at all times thereafter; or (iv) if
approved, authorized or ratified in writing by Agent at the direction of
Requisite Lenders. Upon request by Agent at any time, each Lender will confirm
in writing Agent's authority to release particular types or items of Collateral
pursuant to this SECTION 10.11.
10.12. Agreement to Cooperate.
-----------------------
Each Lender agrees to cooperate to the end that the terms and
provisions of this Agreement may be promptly and fully carried out. Lenders also
agree, from time to time, at the request of Agent, to execute and deliver any
and all other agreements, documents or instruments and to take such other
actions, all as may be reasonably necessary or desirable to effectuate the
terms, provisions and intent of this Agreement and the Related Agreements.
10.13. Sharing of Collateral.
----------------------
If any Lender shall obtain any payment (whether voluntary,
involuntary, through exercise of any right of set off, or otherwise) on account
of the Liabilities in excess of the amount to which it is entitled pursuant to
this Agreement, such Lender shall forthwith purchase from the other Lenders such
participations in such other Lenders' claims against Borrower as shall be
necessary to cause such purchasing Lender to share the excess payment with the
other Lenders in accordance with the provisions of this Agreement; provided,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from such other Lender shall be rescinded
and such other Lenders shall repay to the purchasing Lender the purchase price
to the extent of their portion of such recovery together with an amount equal to
the share (according to the proportion of (i) the amount of such other Lenders'
required repayment, to (ii) the total amount so recovered from the purchasing
Lender) of any interest or other amount paid or payable by purchasing Lender in
respect of the total amount recovered.
10.14. Lenders to Act as Agents.
-------------------------
If any Collateral or proceeds thereof at any time comes into
the possession or under the control of any Lender, such Lender shall hold such
Collateral or proceeds thereof as agent for the joint benefit of Lenders, and
will, upon receipt therefor, deliver such Collateral or proceeds thereof to
Agent.
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11. GENERAL.
11.1. Borrower's Waiver.
------------------
Except as otherwise provided for in this Agreement, to the
extent permitted by applicable law, Borrower waives (a) presentment, demand and
protest and notice of presentment, protest, default, non-payment, maturity,
release, compromise, settlement, one or more extensions or renewals of any or
all commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Agent or any Lender on which Borrower
may in any way be liable and hereby ratifies and confirms whatever Agent or any
Lender may do in this regard; and (b) all rights to notice and a hearing prior
to Agent's or any Lender's taking possession or control of, or Agent's or any
Lender's replevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing Agent or any
Lender to exercise any of Agent's or any Lender's remedies.
11.2. Power of Attorney.
------------------
Borrower appoints Agent, or any Person whom Agent may from
time to time designate, as Borrower's attorney and agent-in-fact with power
(which appointment and power, being coupled with an interest, is irrevocable
until all Payment Liabilities under this Agreement are paid and performed in
full and this Agreement is terminated), without notice to Borrower, to:
(a) At such time or times hereafter as Agent or said agent, in
its sole and absolute discretion, may determine in Borrower's or Agent's name
(i) after the occurrence and during the continuance of an Event of Default, to
endorse Borrower's name on any checks, notes, drafts or any other items of
payment relating to and/or proceeds of the Collateral which come into the
possession of Agent or under Agent's control and apply such payment or proceeds
to the Liabilities; (ii) after the occurrence and during the continuance of an
Event of Default, to endorse Borrower's name on any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement in Agent's possession relating to Accounts Receivable, Inventory or
any other Collateral; (iii) after the occurrence and during the continuance of
an Event of Default, use the information recorded on or contained in any data
processing equipment and computer hardware and software to which Borrower has
access relating to Accounts Receivable, Inventory and/or other Collateral; and
(iv) if not done by Borrower, do all acts and things determined by Agent to be
reasonably necessary, to fulfill Borrower's obligations under this Agreement;
and
(b) At such time or times after the occurrence and during the
continuance of an Event of Default, as Agent or said agent, in its sole and
absolute discretion, may determine, in Borrower's or Agent's name: (i) demand
payment of the Accounts Receivable; (ii) enforce payment of the Accounts
Receivable, by legal proceedings or otherwise; (iii) exercise all Borrower's
rights and remedies with respect to the collection of the Accounts Receivable
and other Collateral; (iv) settle, adjust, compromise, extend or renew the
Accounts Receivable; (v) settle, adjust or compromise any legal proceedings
brought to collect the Accounts Receivable; (vi) if permitted by applicable law,
sell or assign the Accounts Receivable and/or other Collateral upon such terms
for such amounts and at such time or times as Agent may deem advisable; (vii)
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discharge and release the Accounts Receivable and/or other Collateral; (viii)
prepare, file and sign Borrower's name on any proof of claim in bankruptcy or
similar document against any Account Debtor; (ix) prepare, file and sign
Borrower's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts Receivable and/or other
Collateral; and (x) do all acts and things necessary, in Agent's sole and
absolute discretion, to obtain repayment of the Payment Liabilities and to
fulfill Borrower's other obligations under this Agreement.
11.3. Expenses and Attorneys' Fees.
-----------------------------
Borrower agrees, whether or not any Loan is made or Letter of
Credit is issued, to pay within fifteen (15) days of demand therefor, all
Attorneys' Fees and out-of-pocket expenses of Agent in connection with the
transactions contemplated hereby. For purposes of this Agreement, "Attorneys'
Fees" means the reasonable value of the services (and costs, charges and
expenses related thereto) of the attorneys (and all paralegals and any outside
consultants employed by such attorneys) employed by Agent or, if an Event of
Default is then in existence, any Lender (including but not limited to attorneys
and paralegals who are employees of Agent or any Lender) from time to time (a)
in connection with the negotiation, preparation, execution, delivery,
administration and enforcement of this Agreement, any Related Agreement, any
Supplemental Documentation and all other documents or instruments provided for
herein or in any thereof or delivered or to be delivered hereunder or under any
thereof or in connection herewith or with any thereof, (b) to prepare
documentation related to the Loans made and other Liabilities incurred
hereunder, (c) to prepare any amendment to or waiver under this Agreement or any
Related Agreement and any documents or instruments related thereto, (d) to
represent Agent or any Lender in any litigation, contest, dispute, suit or
proceeding or to commence, defend or intervene in any litigation, contest,
dispute, suit or proceeding or to file a petition, complaint, answer, motion or
other pleading, or to take any other action in or with respect to, any
litigation, contest, dispute, suit or proceeding (whether instituted by Agent or
any Lender, Borrower or any other Person and whether in bankruptcy or otherwise)
in any way or respect relating to the Collateral, this Agreement or any Related
Agreement, or any Company's or any other Obligor's affairs, (e) to protect,
collect, lease, sell, take possession of, or liquidate any of the Collateral,
(f) to perfect or attempt to enforce any security interest in any of the
Collateral or to give any advice with respect to such enforcement and (g) to
enforce any of Agent's or any Lender's rights to collect any of the Liabilities.
Agent may advance all such amounts to Borrower as a Revolving Loan. Borrower
also agrees, (y) to indemnify and hold Agent and each Lender harmless from any
loss or expense which may arise or be created by the acceptance of telephonic or
other instructions for making Loans or issuing Letters of Credit except for any
such loss or expense arising from Agent or such Lender's gross negligence or
willful misconduct, and (z) to pay, and save Agent and each Lender harmless from
all liability for, any stamp or other taxes which may be payable with respect to
the execution or delivery of this Agreement, or any Related Agreement or
Supplemental Documentation, or the issuance of any Note or of any other
instruments or documents provided for herein or to be delivered hereunder or in
connection herewith. [NOTWITHSTANDING THE FOREGOING, BORROWER SHALL NOT BE
LIABLE FOR THE FEES CHARGED BY GOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM & MORITZ,
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LTD. TO AGENT THROUGH THE CLOSING DATE IN EXCESS OF SEVENTY-FIVE THOUSAND
DOLLARS ($75,000).]
11.4. BAI's Fees and Charges.
-----------------------
To the extent not already covered by SECTION 11.3, Borrower
agrees to pay BAI on demand by BAI the customary fees and charges of BAI for
maintenance of accounts with BAI or for providing other services to Borrower and
if not so paid, each Lender shall, without regard to any other provision of this
Agreement or any other Related Agreement or any defense that Borrower may have
to its obligation to pay BAI in connection with such fees and charges, pay BAI
for such Lender's Pro Rata Share of such fees and charges, and any payments so
made by Lenders to BAI shall be deemed to be Revolving Loans. Each Lender (other
than BAI) acknowledges and agrees that it shall not be entitled to any of the
fees and charges of BAI as provided in the immediately preceding sentence. Upon
at least two (2) Banking Days' advance notice to Borrower (or during the
continuance of an Event of Default, without notice to Borrower), Agent may, in
its sole and absolute discretion, provide for such payment by advancing the
amount thereof to Borrower as a Revolving Loan.
11.5. Lawful Interest.
----------------
In no contingency or event whatsoever shall the interest rate
charged pursuant to the terms of this Agreement exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that any Lender has received interest hereunder in excess of the
highest applicable rate, such Lender shall promptly refund its Pro Rata Share of
such excess interest to Borrower.
11.6. No Waiver by Agent or any Lender; Amendments.
---------------------------------------------
No failure or delay on the part of Agent or any Lender in the
exercise of any power or right, and no course of dealing between Borrower and
Agent or any Lender shall operate as a waiver of such power or right, nor shall
any single or partial exercise of any power or right preclude other or further
exercise thereof or the exercise of any other power or right. The remedies
provided for herein are cumulative and not exclusive of any remedies which may
be available to Agent or any Lender at law or in equity. No notice to or demand
on Borrower not required hereunder shall in any event entitle Borrower to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of Agent or any Lender to any other or further
action in any circumstances without notice or demand. No amendment, modification
or waiver of, or consent with respect to, any provision of this Agreement or any
Related Agreement shall in any event be effective unless the same shall be in
writing and signed and delivered by Requisite Lenders, and with respect to any
amendment or modification, also by Borrower. Notwithstanding the foregoing, (a)
any amendment, modification, termination, waiver or consent with respect to any
of the following provisions of this Agreement shall be effective only by a
written agreement, signed by each Lender affected thereby: (i) increase in the
amount of the Maximum Loan Amount or Maximum Revolving Loan Amount of such
Lender, (ii) reduction of
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the principal of, rate or amount of interest on the Loans or any fees or charges
payable to such Lender (other than by the payment or prepayment thereof), (iii)
postponement of the date fixed for any payment of principal of, or interest on,
the Loans or any fees or charges) or other amounts payable to such Lender, (iv)
change in the aggregate Pro Rata Share of Lenders which shall be required for
Lenders or any of them to take action hereunder or amend the definition of
"REQUISITE LENDERS," or (v) amendment of this SECTION 11.6 and (b) any
amendment, modification, termination, waiver or consent affecting Agent or
Issuer shall be effective only by a written agreement signed by Agent or Issuer,
as applicable. Agent may, but shall have no obligation to, with the written
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver of any provision of this
Agreement, and any consent to any departure by Borrower from the terms of any
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which given.
11.7. Termination of Credit.
----------------------
Borrower may terminate the Credit at any time upon notice to
Agent and payment in full of the outstanding principal balance of the Loans and
all other Payment Liabilities under this Agreement and the Related Agreements.
All of Agent's and each Lender's rights and remedies, the Liens of Agent on the
Collateral, for the benefit of itself, Issuer and Lenders, and all of Borrower's
duties and obligations under this Agreement shall survive termination of the
Credit extended to Borrower hereunder until all of the Payment Liabilities
hereunder have been finally paid and performed in full. The termination or
cancellation of the Credit shall not affect or impair the liabilities and
obligations of Borrower or any one or more of the Obligors to Agent and Lenders
or Agent's and each Lender's rights with respect to any Loans and advances made
and other Liabilities incurred prior to such termination or with respect to the
Collateral.
11.8. Notices.
--------
Except as otherwise expressly provided herein, any notice
hereunder to Borrower, Agent or any Lender shall be in writing (including
facsimile communication) and shall be given to Borrower, Agent or such Lender at
its address or facsimile number set forth on the signature pages hereof or at
such other address or facsimile number as Borrower, Agent or such Lender may, by
written notice, designate as its address or facsimile number for purposes of
notices hereunder. All such notices shall be deemed to be given: (a) if
delivered by facsimile, when transmitted, (b) if delivered by courier, when
delivered by such courier, (c) if delivered in person, when delivered, and (d)
if delivered by mail, three (3) Banking Days following deposit in the United
States mails, properly addressed as herein provided, with proper postage
prepaid; provided, however, that notice to Agent of Borrower's intent to
terminate the Credit shall not be effective until actually received by Agent.
11.9. Assignments and Participations; Information.
--------------------------------------------
(a) This Agreement may not be assigned by Borrower without the
prior written consent of Agent and Lenders. Whenever in this Agreement reference
is made to any of the parties hereto, such reference shall be deemed to include,
wherever applicable, a reference to the
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successors and permitted assigns of Borrower and the successors and assigns of
Agent and each Lender.
(b) Borrower and each Lender hereby agree that on or after the
date hereof, each Lender may, in its discretion, without any other Lender's
consent, but with the prior consent of Agent and Borrower, which consents will
not be unreasonably withheld, sell one or more assignments of portions of its
interest in the Credit to any Person; provided, that (i) any Lender may sell an
assignment of any or all of its interest in the Credit to any Related Party of
such Lender without the consent of any Person and (ii) the percentage of the
Term Loan assigned by a Lender to a Person shall equal the percentage of the
Maximum Revolving Loan Amount assigned by such Lender to such Person. Each
assignment shall be at no cost to Borrower and of a constant, and not a varying,
ratable percentage of all of the assigning Lender's rights and obligations under
this Agreement, and the Maximum Loan Amount assigned shall be in a minimum
amount of Five Million Dollars ($5,000,000) and after giving effect to such
assignment no Lender's Maximum Loan Amount shall be less than Ten Million
Dollars ($10,000,000) (unless such Lender sells all of its interest in the
Credit).
(c) The parties to each assignment of an interest in the
Credit as permitted pursuant to clause (b) above shall execute and deliver to
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance Agreement, with a copy to Borrower. Upon such execution, delivery,
acceptance and recording in the Register, from and after the effective date
specified in each Assignment and Acceptance Agreement and agreed to by Agent,
(i) the assignee thereunder shall, in addition to any rights and obligations
hereunder held by it immediately prior to such effective date, if any, have the
rights and obligations hereunder that have been assigned to it pursuant to such
Assignment and Acceptance Agreement and shall, to the fullest extent permitted
by law, have the same rights and benefits hereunder as if it were an original
Lender hereunder and (ii) the assigning Lender shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance Agreement, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance Agreement covering all or the remaining portion of such assigning
Lender's rights and obligations under this Agreement, the assigning Lender shall
cease to be a party hereto).
(d) Agent shall maintain a copy of each Assignment and
Acceptance Agreement delivered to and accepted by it and a register (the
"Register") for the recordation of the names and addresses of Lenders and the
Maximum Loan Amount and the Maximum Revolving Loan Amount and principal amount
of the Loans owing to each Lender from time to time. The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
Borrower, Agent and Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance Agreement
executed by the assigning Lender and the assignee and a processing and
recordation fee of Two Thousand Five
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<PAGE> 93
Hundred Dollars ($2,500) (payable by the assigning Lender or the assignee, as
shall be agreed between them), Agent shall, if such Assignment and Acceptance
Agreement has been completed and is in compliance with this Agreement and in
substantially the form of EXHIBIT C and Borrower and Agent have consented to the
assignment evidenced thereby, (i) accept such Assignment and Acceptance
Agreement, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to Borrower.
(f) Each Lender may, with the consent of Agent, which may not
be unreasonably withheld, sell participations to one or more other financial
institutions in or to all or a portion of its rights and obligations under and
in respect of any and all facilities under this Agreement; provided, that any
Lender may sell a participation in any or all of its interest in the Credit to
any Related Party of such Lender without the consent of any Person; provided,
further, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) Borrower, Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
(iv) such participant's rights to agree or to restrict such Lender's ability to
agree to the modification, waiver or release of any of the terms of this
Agreement or the Related Agreements or to the release of any Collateral covered
by this Agreement or the Related Agreements, to consent to any action or failure
to act by any party to this Agreement or any of the Related Agreements, or to
exercise or refrain from exercising any powers or rights which any Lender may
have under or in respect of this Agreement or the Related Agreements or any
Collateral, shall be limited to the right to consent to (A) an increase in the
Maximum Loan Amount of the Lender from whom such participant purchased a
participation, (B) reduction of the principal of, or rate or amount of interest
on the Loans subject to such participation (other than by the payment or
prepayment thereof) or (C) postponement of any date fixed for any payment of
principal of, or interest on, the Loans subject to such participation. Each
Lender agrees to promptly notify Agent and Borrower of each sale of a
participation hereunder.
(g) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this SECTION
11.9, disclose to the assignee or participant or proposed assignee or
participant, any information relating to any Company or any other Obligor
furnished to such Lender; provided, that prior to any such disclosure, such
assignee or participant, or proposed assignee or participant, shall agree to
preserve the confidentiality of any confidential information described therein
and such Lender shall notify Borrower of the assignee or participant, or
proposed assignee or participant.
(h) Anything in this Agreement to the contrary
notwithstanding, in the case of any participation, all amounts payable by
Borrower under this Agreement or the Related Agreements shall be calculated and
made in the manner and to the parties required hereby as if no such
participation had been sold.
(i) Agent agrees to promptly notify Borrower of each sale of a
permitted participation or permitted assignment hereunder. Borrower agrees to
use its reasonable efforts to
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assist Lenders in their efforts to sell assignments and participations
hereunder. In addition, Borrower agrees to execute new Notes in favor of each of
the selling and purchasing Lender, upon each sale of an assignment hereunder,
provided that the existing Notes in favor of the selling Lender are
simultaneously therewith returned to Borrower.
11.10. Borrower's Documentation; Confidentiality.
------------------------------------------
Borrower hereby acknowledges and agrees that Agent and Lenders
shall be under no obligation to return any due diligence reports, schedules,
financial statements or any other disclosure documents furnished to Agent or any
Lender by Borrower, any Company or any third party in connection with the Loans.
The Agent and each Lender hereby (a) acknowledges that each
Company has financial, marketing, environmental and other data and information
the confidentiality of which is important to its business and (b) agrees to keep
confidential any financial, marketing, environmental and other data and
information of each Company to the extent designated by it as confidential,
PROVIDED that this section shall not preclude Agent or any Lender from
furnishing any such data or information (A) as may be required by order of any
court of competent jurisdiction or requested by any governmental agency having
any regulatory authority over that holder or its securities, (B) to any other
party to this Agreement, (C) to any actual or prospective transferee (so long as
such prospective transferee is a financial institution) of all or part of
Agent's or that Lender's rights arising out of or in connection with this
Agreement so long as such prospective transferee to whom disclosure is made
agrees to be bound by the provisions of this SECTION 11.10, (D) to anyone if it
shall have been already publicly disclosed (other than by Agent or that Lender
in contravention of this SECTION 11.10), (E) to the extent reasonably required
in connection with the exercise of any right or remedy under this Agreement and
(F) to Agent's or that Lender's legal counsel, auditors and accountants. The
obligations of Agent and Lenders under this section shall survive termination of
this Agreement.
11.11. Severability.
-------------
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
11.12. Successors.
-----------
This Agreement shall be binding upon Borrower, Agent and each
Lender and their respective successors and permitted assigns, and shall inure to
the benefit of Borrower, Agent and each Lender and their respective successors
and permitted assigns.
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11.13. Construction.
-------------
This Agreement and the Related Agreements and Supplemental
Documents shall, unless otherwise expressly provided therein, be deemed to have
been negotiated and entered into in, and shall be governed and controlled by the
laws of, the State of Illinois as to interpretation, enforcement, validity,
construction, effect, choice of law, and in all other respects, including but
not limited to the legality of the interest rate and other charges, but
excluding perfection of security interests and liens which shall be governed and
controlled by the laws of the relevant jurisdiction.
11.14. Consent to Jurisdiction.
------------------------
Agent, each Lender and Borrower each irrevocably agrees that,
subject to Agent's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
RELATED AGREEMENTS, OR THE SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
AGENT, EACH LENDER AND BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION
OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND AGREES THAT ALL SUCH
SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO IT AT THE ADDRESS
STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF.
11.15. Waiver of Jury Trial.
---------------------
BORROWER, AGENT AND EACH LENDER EACH WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a)
UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
11.16. Judgment.
---------
If, for the purposes of obtaining judgment in any court, it is
necessary to convert a sum due hereunder or under any other Related Agreement in
one currency into another currency, the rate of exchange used shall be that at
which in accordance with normal banking procedures the Agent, could purchase the
first currency with such other currency on the Banking Day preceding that on
which final judgment is given. The obligation of Borrower in respect of any such
sum due from it to the Agent or any Lender hereunder or under the other Related
Agreements shall, notwithstanding any judgment in a currency (the "Judgment
Currency") other than that in which
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<PAGE> 96
such sum is denominated in accordance with the applicable provisions of this
Agreement or the other Related Agreements (the "Agreement Currency"), be
discharged only to the extent that on the Banking Day following receipt by the
Agent or such Lender of any sum adjudged to be so due in the Judgment Currency,
the Agent or such Lender may in accordance with normal banking procedures
purchase the Agreement Currency with the Judgment Currency. If the amount of the
Agreement Currency so purchased is less than the sum originally due to the Agent
or such Lender in such currency, Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Agent, Lender or the Person
to whom such obligation was owing against such loss. If the amount of the
Agreement Currency so purchased is greater than the sum originally due to the
Agent or any Lender in such currency, the Agent or such Lender agrees to return
the amount of any excess to Borrower (or to any other Person who may be entitled
thereto under applicable law).
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
UNIFRAX CORPORATION, as Borrower
By________________________________________
Its_______________________________________
Address: 2351 Whirlpool Street
Niagara Falls, New York 14305-2413
Telecopier: (716) 278-3903
Attention: Chief Financial Officer
with a copy to:
Kirtland Capital Partners II L.P.
Address: 2550 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
Telecopier: (216) 585-9699
Attention: Thomas N. Littman
BANK OF AMERICA ILLINOIS, as Agent
By________________________________________
Its_______________________________________
Address: 231 South LaSalle Street
8th Floor - Mail Drop 0830
Chicago, Illinois 60697
Telecopier: (312) 084-9102
Attention: David L. Graham
Agency Management Services
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BANK OF AMERICA ILLINOIS, as a Lender
By_________________________________________
Its________________________________________
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Telecopier: (312) 828-1974
Attention: Middle Market II
Maximum Loan Amount: $22,500,000
Maximum Revolving Loan Amount: $10,000,000
Maximum Term Loan Amount: $12,500,000
NATIONAL CITY BANK, as a Lender
By_________________________________________
Its________________________________________
Address: 1900 East Ninth Street
Cleveland, Ohio 44114
Telecopier: (216) 575-9396
Attention: Metro/Ohio
Maximum Loan Amount: $22,500,000
Maximum Revolving Loan Amount: $10,000,000
Maximum Term Loan Amount: $12,500,000
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<PAGE> 99
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibits:
- ---------
<S> <C>
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Compliance Certificate
Exhibit C Form of Assignment and Acceptance Agreement
Exhibit D EBITDA for the First Three Calendar Quarters of Fiscal Year 1996
Schedules:
- ----------
Schedule 4.1 Schedule of Tradenames, State of Incorporation and Qualification
Schedule 4.6 Schedule of Certain Events
Schedule 4.7 Schedule of Insurance
Schedule 4.8 Schedule of Litigation and Contingent Liabilities
Schedule 4.9 Schedule of Liens
Schedule 4.10 Schedule of Subsidiaries
Schedule 4.11 Schedule of Partnerships and Joint Ventures
Schedule 4.12 Schedule of Business and Collateral Locations
Schedule 4.13 Schedule of Real Property Descriptions and Owners
Schedule 4.15 Schedule of Leases
Schedule 4.16 Schedule of Patents, Trademarks and Copyrights
Schedule 4.18 Schedule of Labor Matters
Schedule 4.19 Schedule of Contingent Employee Benefit Plan Liabilities
Schedule 4.21 Schedule of Noncompliance
Schedule 4.22 Schedule of Tax Audits
Schedule 4.25 Schedule of Environmental Matters
Schedule 5.8 Schedule of Tax Sharing Arrangements
Schedule 5.14 Schedule of Indebtedness
Schedule 5.17 Schedule of Investments
Schedule 8.1(c) Schedule of Title Endorsements
</TABLE>
<PAGE> 1
Exhibit 10.2
UNIFRAX CORPORATION
1996 STOCK OPTION PLAN
1. PURPOSE.
The plan will be known as the Unifrax Corporation 1996 Stock Option
Plan (the "Plan"). The purpose of the Plan is to promote the long-term
growth and profitability of Unifrax Corporation (the "Company") and its
subsidiaries by (i) providing certain officers and other key employees
of the Company and its subsidiaries with incentives to improve
stockholder values and contribute to the success of the Company and
(ii) enabling the Company to attract, retain and reward the best
available persons for positions of substantial responsibility. Grants
of Incentive or Nonqualified Stock Options may be made under the Plan.
2. DEFINITIONS.
(a) "INCENTIVE STOCK OPTION" means an option conforming to the
requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(b) "NONQUALIFIED STOCK OPTION" means any stock option other than
an Incentive Stock Option.
(c) "SUBSIDIARY" and "SUBSIDIARIES" mean a corporation or
corporations of which outstanding shares representing 50% or
more of the combined voting power of such corporation or
corporations are owned directly or indirectly by the Company.
(d) "DISABILITY" means a permanent and total disability as defined
in Section 422(c)(6) of the Code.
(e) "CAUSE" means the occurrence of one of the following:
(i) Conviction of a felony or of any crime or offense
lesser than a felony involving the property of the
Company or a subsidiary.
(ii) Conduct that has caused demonstrable and serious
injury to the Company or a subsidiary, monetary or
otherwise, as evidenced by a final determination of a
court or governmental agency of competent
jurisdiction in effect after exhaustion or lapse of
all rights of appeal.
(iii) Continued gross dereliction of duty or other
misconduct, as determined by the Board of Directors
of the Company after notice has been provided.
<PAGE> 2
(f) "CHANGE IN CONTROL" means an event that would result in
Kirtland Capital Corporation, Kirtland Capital Partners II, or
any of their affiliates, owning less than a majority of the
Company's common stock.
(g) "FAIR MARKET VALUE" of a share of common stock of the Company
means, with respect to the date in question, the average of
the closing bid and asked prices as quoted by the National
Association of Securities Dealers through its automated
quotation system ("NASDAQ"); or, if the Company's common stock
is listed or admitted to unlisted trading privileges on a
national stock exchange (the National Association of
Securities Dealers National Market System is deemed to be a
national stock exchange), either (x) the average of the
highest and lowest officially-quoted selling prices on such
exchange or (y) the closing sale price of such stock, as
selected by the Committee; or if the Company's common stock is
not quoted by NASDAQ, traded on such an exchange, or otherwise
traded publicly, the value determined, in good faith, by the
Committee.
3. ADMINISTRATION.
The Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee") consisting of at
least two persons. Any option granted to "cover employees" as defined
in Section 162(m) of the Code must be approved by at least two "outside
directors" within the meaning of Section 162(m) of the Code and
regulation 1.162-27 promulgated under the Code. Members of the
Committee must be directors of the Company. Subject to the provisions
of the Plan, the Committee is authorized to (i) select persons to
participate in the Plan, (ii) determine the form and substance of
grants made under the Plan to each participant, and the conditions and
restrictions, if any, subject to which such grants will be made, (iii)
interpret the Plan and (iv) adopt, amend, or rescind such rules and
regulations for carrying out the Plan as it may deem appropriate.
Decisions of the Committee on all matters relating to the Plan will be
in the Committee's sole discretion and will be conclusive and binding
on all parties, including the Company, its stockholders, and the
participants in the Plan. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan will be
determined in accordance with applicable federal and state laws and
rules and regulations promulgated pursuant thereto. No member of the
Board or of the Committee shall incur any liability for any action
taken or omitted, or any determination made, in good faith in
connection with the Plan.
4. SHARES AVAILABLE FOR THE PLAN.
Subject to adjustments as provided in Section 12, an aggregate of 1,505
shares of common stock, $.01 par value of the Company (the "Common
Stock") may be issued pursuant to the Plan. Such shares may represent
unissued or treasury shares. If any option under the Plan expires or
terminates unexercised, becomes unexercisable or is
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<PAGE> 3
forfeited as to any shares, such unpurchased or forfeited shares will
thereafter be available for further grants under the Plan.
5. PARTICIPATION.
Participation in the Plan is limited to those officers or employees of
the Company and its subsidiaries selected by the Committee. Each
employee to whom a grant is made under the Plan must enter into the
Stock Option Agreement and the Noncompetition Agreement with the
Company that will contain such provisions, not inconsistent with the
provisions of the Plan, as may be established by the Committee. Each
employee must enter into the Stockholders Agreement at the time any
options to purchase shares are exercised. Nothing in the Plan or in any
grant thereunder confers any right to an employee to continue in the
employ of the Company, or any subsidiary, or interferes in any way with
the right of the Company, or any subsidiary, to terminate an employee
at any time. Incentive or Nonqualified Stock Options may be granted to
such persons and for such number of shares as the Committee determines
(such individuals to whom grants are made being herein called
"optionees" or "grantees" as the case may be).
6. INCENTIVE AND NONQUALIFIED OPTIONS.
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination
thereof. The options granted will take such form as the Committee
determines, subject to the following terms and conditions.
(a) PRICE. Unless otherwise determined by the Committee, the price
per share deliverable upon the exercise of each option
("exercise price") will not be less than 100% of the Fair
Market Value of the shares on the date the option is granted.
In the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of
the total combined voting power of all classes of stock of the
Company or any of its subsidiaries, such price per share, if
required by the Code at the time of grant, will not be less
than 110% of the Fair Market Value of the shares on the date
the option is granted.
(b) CASH EXERCISE. Options may be exercised in whole or in part
upon payment of the exercise price of the shares to be
acquired. Payment is to be made in cash or, in the discretion
of the Committee, in shares of the Company previously acquired
by the participant or a combination of cash and shares of
Common Stock. The Fair Market Value of shares of Common Stock
tendered on exercise of options will be determined on the date
of exercise.
(c) TERMS AND CONDITIONS OF OPTIONS. The term during which each
option may be exercised will be determined by the Committee,
but in no event will an option
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<PAGE> 4
be exercisable in whole or in part, in the case of a
Nonqualified Stock Option, more than ten years and one day
from the date it is granted or, in the case of an Incentive
Stock Option, more than ten years from the date it is granted;
and, in the case of the grant of an Incentive Stock Option to
an employee who at the time of the grant owns more than 10% of
the total combined voting power of all classes of stock of the
Company or any of its subsidiaries, in no event will such
option be exercisable, if required by the Code at the time of
grant, more than five years from the date of the grant. All
rights to purchase shares pursuant to an option will, unless
sooner terminated, expire at the date designated by the
Committee. The Committee will determine the date on which each
option will become exercisable and may provide that an option
will become exercisable in installments. The shares
constituting each installment may be purchased in whole or in
part at any time after such installment becomes exercisable,
subject to such minimum exercise requirement as is designated
by the Committee. The Committee may accelerate the time at
which any option may be exercised in whole or in part. Unless
otherwise provided herein, an optionee may exercise an option
only if he or she is, and has continuously been since the date
the option was granted, an employee of the Company or a
subsidiary, and if the optionee has executed the Stockholders
Agreement, a copy of which is attached as Exhibit A, which may
be amended or changed from time to time. Prior to the exercise
of the option and delivery of the shares represented thereby,
the optionee will have no rights to any dividends or be
entitled to any voting rights on any shares represented by
outstanding options.
(d) LIMITATIONS ON GRANTS. If required by the Code at the time of
grant of an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the grant date) of shares for which
such option is exercisable for the first time during any
calendar year (under all such plans of the Company, its
parent, if any, and its subsidiaries, if any) may not exceed
$100,000.
(e) TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. If a participant
ceases to be an employee of the Company or any subsidiary due
to death or Disability, each of the participant's options that
was exercisable on the date of termination and will remain so
for a period of one year from the date of termination of
employment, but in no event after its expiration date. All of
the participants options that were not exercisable on the date
of such terminations will be forfeited
If a participant ceases to be an employee of the
Company or any subsidiary due to Cause, all of his or her
options will be forfeited.
If a participant ceases to be an employee of the
Company or any subsidiary for any reason other than death,
Disability, Retirement or Cause, each of his or her options
that was exercisable on the date of termination will
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<PAGE> 5
remain exercisable for, and will otherwise terminate at the
end of, a period of 90 days after the date of termination of
employment, but in no event after its expiration date. All of
the participant's options that were not exercisable on the
date of such termination will be forfeited.
Notwithstanding anything to the contrary herein, if a
participant ceases to be an employee of the Company or any
subsidiary the Committee at its sole discretion may accelerate
the vesting of any option so that it will become fully vested
and exercisable as of the date of such participant's
termination of employment.
If there is a Change in Control of the Company, there
will be an automatic acceleration of the vesting of any
outstanding option so that it will become fully vested and
exercisable as of the date of the Change in Control.
7. WITHHOLDING OF TAXES.
The Committee may require, as a condition to any grant under the Plan
or to the delivery of certificates for shares issued hereunder, that
the grantee pay to the Company, in cash, any federal, state or local
taxes of any kind required by law to be withheld with respect to any
grant or any delivery of shares. The Committee, in its sole discretion,
may permit participants to pay such taxes through the withholding of
shares otherwise deliverable to such participant in connection with
such grant or the delivery to the Company of shares otherwise acquired
by the participant. The Fair Market Value of shares of Common Stock
withheld by the Company or tendered to the Company for the satisfaction
of tax withholding obligations under this section will be determined on
the date such shares are withheld or tendered. The Company, to the
extent permitted or required by law, will have the right to deduct from
any payment of any kind (including salary or bonus) otherwise due to a
grantee any federal, state or local taxes of any kind required by law
to be withheld with respect to any grant or to the delivery of shares
under the Plan, or to retain or sell without notice a sufficient number
of the shares to be issued to such grantee to cover any such taxes,
provided that the Company will not sell any such shares if such sale
would be considered a sale by such grantee for purposes of Section 16
of the Exchange Act.
8. TRANSFERABILITY.
No option granted under the Plan will be transferable by an employee
otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code
or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised only by the optionee or grantee
thereof or his guardian or legal representative; provided that
Incentive Stock Options may be exercised by such guardian or legal
representative only if permitted by the Code and any regulations
promulgated thereunder.
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<PAGE> 6
9. LISTING AND REGISTRATION.
If the Committee determines that the listing, registration, or
qualification upon any securities exchange or under any law of shares
subject to any option is necessary or desirable as a condition of, or
in connection with, the granting of same or the issue or purchase of
shares thereunder, no such option may be exercised in whole or in part,
or no shares issued unless such listing, registration or qualification
is effected free of any conditions not acceptable to the Committee.
10. TRANSFER OF EMPLOYEE.
Transfer of an employee from the Company to a subsidiary, from a
subsidiary to the Company, and from one subsidiary to another will not
be considered a termination of employment. Nor will it be considered a
termination of employment if an employee is placed on military or sick
leave or such other leave of absence which is considered as continuing
intact the employment relationship; in such a case, the employment
relationship will be continued until the date when an employee's right
to reemployment will no longer be guaranteed either by law or by
contract.
11. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or shares of the
Company, the Committee may make such adjustments as it deems
appropriate in the number and kind of shares reserved for issuance
under the Plan, in the number and kind of shares covered by grants made
under the Plan, and in the exercise price of outstanding options. If
the Company is the surviving corporation in any merger or
consolidation, each outstanding option will pertain and apply to the
securities to which a holder of the number of shares subject to the
option would have been entitled. In the event of any merger,
consolidation or other reorganization in which the Company is not the
surviving or continuing corporation, all options that were granted
hereunder and that are outstanding on the date of such event will be
assumed by the surviving or continuing corporation.
12. TERMINATION AND MODIFICATION OF THE PLAN.
The Board of Directors, without further approval of the shareholders,
may modify or terminate the Plan and from time to time may suspend, and
if suspended, may reinstate any or all of the provisions of the Plan,
unless otherwise required by Section 422 or Section 162(m) of the Code.
With the consent of the grantee affected thereby, the
Committee may amend or modify the grant of any outstanding option in
any manner to the extent that the Committee would have had the
authority to make such grant as so modified or amended, including
without limitation to change the date or dates as of which an
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<PAGE> 7
option becomes exercisable. All shares issued upon exercise of any
option are subject to the Stockholders Agreement. The Committee is
authorized to make minor or administrative modifications to the Plan as
well as modifications to the Plan that may be dictated by requirements
of federal or state laws applicable to the Company or that may be
authorized or made desirable by such laws.
13. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of the Plan is __________, 1996. Unless
previously terminated, the Plan will terminate at the close of business
on December 31, 2006.
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<PAGE> 1
Exhibit 10.7
PRODUCT
DISTRIBUTION AGREEMENT
This Agreement is made as of February 29, 1996, by and between Unifrax
Corporation (formerly named The Carborundum Company), a Delaware corporation
company having offices at 2351 Whirlpool Street, Niagara Falls, New York 14305
(hereinafter known as the "Company"), and Societe Europeenne des Produits
Refractaires, a French company having offices at "Les Miroirs", 18 Avenue
d'Alsace, 92400 Courbevoie (hereinafter known as "SEPR").
WHEREAS BP is the indirect owner of The Carborundum Group and the
Company which includes NAF and the patents, trademarks and other intellectual
property relating to the world-wide ceramic fibers business presently conducted
by The Carborundum Group and NAF; and
WHEREAS SEPR is in the process of acquiring The Carborundum Group from
indirect wholly owned subsidiaries of BP and has entered into a stock purchase
agreement (the "Stock Purchase Agreement") to the effect, under the condition,
inter alia, that the parties hereto enter into this Agreement:
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable considerations, it is mutually agreed as
follows:
ARTICLE 1 - DEFINITIONS
-----------------------
Whenever used in this Agreement, the following terms shall have the
meaning ascribed to them hereunder:
1.01 "Agreement" shall mean this Product Distribution Agreement.
1.02 "Company" shall mean Unifrax Corporation, a Delaware
corporation being, as of the date hereof, an indirect wholly
owned subsidiary of The British Petroleum Company p.l.c.
("BP"), which owns, as of the date hereof, NAF, including
patents, trademarks and other intellectual property relating
to the Distributed Products.
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1.03 "The Carborundum Group" shall mean Newco (as defined in the Stock
Purchase Agreement), Carborundum Ventures Inc. ("CVI"), Carborundum
Resistant Materials Ltd., Carborundum Realty Pty. Ltd., The
Carborundum Company Limited, Carborundum Belgium, S.A., Carborundum
Holdings Ltda., Carborundum do Brasil Ltda., Carborundum Caribbean,
Inc., Carborundum Textil Ltda., Carborundum Deutschland GmbH, and
Carborundum Technical Ceramics GmbH and their subsidiaries excluding
in each case all assets, employees, activities, liabilities or
obligations relating to "NAF" and excluding the assets and liabilities
of (but not CVI's equity investment in) Toshiba -Monofrax Co., Ltd..
1.04 "Defaulting Party" shall have the meaning specified in SECTION 10.01.
1.05 "Distributed Product License Agreement" shall mean the license
relating to the Distributed Products listed on SCHEDULE A entered into
the date hereof between the Company and SEPR.
1.06 "Distributed Products" shall mean;
i) any and all ceramic fiber products listed on SCHEDULE A currently
supplied for resale (including improvements thereto) by NAF to
the corporate entities in The Carborundum Group located outside
of the United States (and its territories), Canada and Mexico;
ii) products developed by NAF after the Closing, or NAF products
(other than Excluded Products) sold outside the Selling Territory
at Closing but not yet sold in the Selling Territory, if and when
SEPR is not able to satisfy a request from a customer located in
the Selling Territory with an equivalent product manufactured by
SEPR within a reasonable time period, i.e. within industry
generally accepted time frame for manufacturing, (but excluding
development time) shipping and distributing new products.
1.07 SCHEDULE A shall exclude the following, (collectively referred to as
the "Excluded Products"):
i) expanding mat containing ceramic fiber and at least twenty-five
percent (25%) by weight vermiculite that is used for catalytic
converters ("XPE");
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ii) products which are identical to, or which are considered by users
as equivalent to or that compete with products manufactured by
SEPR or SEPR's Affiliates;
iii) products which may be manufactured by The Carborundum Group after
the Effective Date pursuant to the License Agreement; and
iv) products which are manufactured by SEPR after the Effective Date
pursuant to the Distributed Product License Agreement or deemed
added to the Distributed Product License Agreement pursuant to
SECTIONS 5.02 or 6.01 of this Agreement .
1.08 "Effective Date" shall mean the date this Agreement is executed by all
the parties hereto.
1.09 "License Agreement" shall mean the license agreement entered into
between SEPR and the Company and effective the date hereof.
1.10 "NAF" shall mean the ceramic fibers business of the Company, located
in the United States (and its territories), Canada and Mexico.
1.11 "Non-Compete Agreement" shall mean the non-compete agreement entered
into between SEPR, Company and BP effective the date hereof.
1.12 "Nondefaulting Party" shall have the meaning specified in SECTION
10.01.
1.13 "Selling Territory" shall mean the world excluding the United States
(and its territories), Canada and Mexico.
1.14 "SEPR" means, jointly and severally, SEPR and any of SEPR's
Affiliate(s) receiving rights from SEPR pursuant to SECTION 2.02.
1.15 "Affiliate(s)" means any company of which a party hereto now or
hereafter owns or controls, directly or indirectly, at least 50% of
the stock having the right to vote for directors thereof. For the
purpose of this definition, the stock owned or controlled by a
particular company shall be deemed to include all stock owned or
controlled directly or indirectly by any other company of which that
particular company owns or controls,
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directly or indirectly, at least 50% numerically of the stock having
the right to vote for directors thereof. When used in connection with
Company, the term "Affiliate" shall also include any company while it
directly or indirectly controls the Company, including BP, and all
affiliates of that company. When used in connection with SEPR,
affiliate shall also include any company while it directly or
indirectly controls SEPR, including Compagnie de Saint-Gobain, and all
affiliates of that company.
1.16 "Trademark Agreement" shall mean the Trademark License and Consent
Agreement between the Company and SEPR dated the date hereof.
ARTICLE 2 - OBJECT
------------------
2.01 Grant. COMPANY hereby grants to SEPR, under the conditions set forth
herein, and SEPR hereby accepts, the exclusive right to sell the
Distributed Products in the Selling Territory.
2.02 SEPR's Affiliates(s). SEPR shall have the right to sub-grant to any of
SEPR's Affiliates the right to sell all or part of the Distributed
Products within part or all of the Selling Territory. In such a case,
SEPR shall inform Company in writing of the name of SEPR's Affiliates
which shall be entrusted with the sale of the Distributed Products in
each specific part of the Selling Territory, and the sales of
Distributed Products by Company to such of SEPR's Affiliates shall
then in any respect be governed by the disposition of this Agreement
as if such of SEPR's Affiliates were a party to this Agreement.
Company agrees and SEPR agrees to cause SEPR's Affiliates, as
appropriate, to execute and deliver such other instruments or take
such other actions as the other may reasonably request to implement
this provision. SEPR shall have the right, at its sole discretion, to
modify at any time the list of SEPR's Affiliates entrusted with the
sale of the Distributed Products within the Selling Territory, in
which case the preceding provisions shall continue to apply.
ARTICLE 3 - EXCLUSIVITY
-----------------------
Company hereby undertakes during the term of this Agreement:
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i) in respect to the Selling Territory, to sell the Distributed Products
exclusively to SEPR; and
ii) not to supply, in the Selling Territory, the Distributed Products to
any other users provided, however, that nothing in this Agreement
shall prevent or restrict the Company from a) selling or shipping XPE
Products into the Selling Territory to any end-user, distributor or
re-seller, or b) supplying and delivering the Distributed Products or
the Excluded Products outside the Selling Territory to end-users in
the Selling Territory (an end-user shall not mean a distributor or
re-seller); and
iii) due to the exclusivity hereby granted, neither to promote or maintain
an inventory of Distributed Products within the Selling Territory; and
iv) not to supply Excluded Products (except XPE) in the Selling Territory
for the duration of the Non-Compete Agreement.
ARTICLE 4 - NATURE OF DISTRIBUTORSHIP
-------------------------------------
4.01 Authority and Capacity. SEPR is an independent contractor, is not an
agent of the Company and is not authorized to waive any right or to
incur, assume or create any debt, obligation, contract or release of
any kind in the name of or on behalf of the Company. Nothing herein
shall be construed so as to create an employer-employee, agency,
partnership, or joint venture relationship between the parties hereto.
4.02 Manufacture and Modification of Distributed Products. Except pursuant
to the SECTION 9.02, SEPR shall not manufacture or duplicate and,
except to the extent required by law as notified to the Company,
modify, add to or alter the Distributed Products without the prior
written consent to the Company except that SEPR may continue to cut
fiber paper rolls and textile products into smaller sizes. SEPR shall
not solicit customers for the Distributed Products or ship the
Distributed Products to Customers, outside the Selling Territory
provided, however, that nothing in this Agreement shall prevent or
restrict SEPR from supplying and delivering the Distributed Products
inside the Selling Territory to end-users outside the Selling
Territory.
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ARTICLE 5 - SEPR OBLIGATIONS
----------------------------
5.01 Marketing Efforts. SEPR shall exercise reasonable efforts to
advertise, promote and market the Distributed Products and not to
damage the goodwill of the Company. SEPR shall conduct its activities
relating to the marketing of the Distributed Products in a
professional manner and in accordance with the reasonable policies and
procedures of the Company including the Product Stewardship Program,
attached hereto as SCHEDULE Q (or a comparable program with respect to
Refractory Ceramic Fibers products), and the terms of this Agreement.
SEPR shall maintain at all times a sufficient stock of Distributed
Products to supply its customers in the ordinary course of business.
5.02 Sales Estimates.
(a) SEPR shall use its best efforts to purchase and sell during the
first year of this Agreement the Distributed Products listed on
SCHEDULE A, in the amounts set forth on SCHEDULE B attached
hereto. However, within 30 days following the Effective Date,
SEPR may at its sole option, after discussion with the Company,
elect to be bound by SCHEDULE A1 (instead of A) and SCHEDULE B1
(instead of B). In such a case, SEPR shall inform the Company in
writing, and then any reference to SCHEDULE A and/or B related to
the first year of this Agreement shall be replaced--mutatis
mutandis--by a reference to SCHEDULE A1 and B1. At least four (4)
months prior to the expiration of each year (measured from the
Effective Date) of this Agreement or of any renewal term hereof,
SEPR shall submit to Company a schedule setting forth the
quantity of such Distributed Products that SEPR estimates it
would purchase and sell during the following year. At least three
(3) months before the end of each year the parties shall meet to
negotiate in good faith and agree the quantities of the
Distributed Products SEPR intends to purchase and sell during the
following year. In the event that the Company and SEPR cannot
agree on the quantities of the Distributed Products to be
purchased and sold by SEPR within the said three (3) month period
before each new year of the Agreement, the projected quantities
for the new year shall be in an amount equal to the amount
purchased in the previous year and the Agreement shall, without
any further action on the part of either
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party, be deemed terminated at the end of such year for any of
the Distributed Products subject to disagreement. In the event
that SEPR fails to purchase and sell in any year of this
Agreement the quantity of any of the Distributed Products that
SEPR estimated it would sell in such year, the Company may upon
twelve (12) months notice elect to terminate such Distributed
Products from this Agreement. This cause for termination shall
not prevent SEPR from receiving a Distributed Product License as
provided in SECTION 9.02.
(b) SEPR shall purchase and sell sufficient quantities of Distributed
Products added in this Agreement in accordance with SECTION
1.06(ii) to fill customer demand or Company may seek an
appropriate remedy pursuant to SECTION 12.04.
5.03 Continuity of Distributed Products.During the term of this Agreement:
(a) SEPR shall make the Distributed Products offered as of the
Effective Date available to customers either as a distributor
pursuant to the terms of this Agreement or as a manufacturer
pursuant to the terms of the Distributed Product License
Agreement; and
(b) SEPR and Kerlane shall not purchase substitutes for the
Distributed Products from any alternative sources of ceramic
fiber products. This commitment shall cease for those of the
Distributed Products which are excluded from the scope of this
Agreement in accordance with SECTIONS 5.02 Or 6.01(a). Nothing in
this SECTION 5.03(b) shall prevent Kerlane continuing to source
product already sourced from suppliers other than NAF for
distribution to Kerlane's existing customers as of the date
hereof.
5.04 Advertising and Samples.
(a) SEPR shall advertise the sale of the Distributed Products in a
manner that will develop customer interest and confidence in the
Distributed Products as reasonably agreed from time to time.
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(b) SEPR will provide the Company with commercial brochures to
establish that such advertising material does not tend to mislead
or deceive the public or be injurious to Company's business,
reputation or Company's trademarks.
(c) Company shall make available to SEPR reasonable quantities of
sales aids, sales brochures, and similar promotional materials
relating to the sale of the Distributed Products without charge
and shall communicate to SEPR the name of any customers from the
Selling Territory who contact Company directly regarding the
Distributed Products.
(d) Company shall provide reasonable quantities of new Distributed
Products to SEPR for testing by SEPR's customers free of charge,
F.O.B. Company's manufacturing facility. For current Distributed
Products (and new Distributed Products more than one (1) year
after commercialization,) SEPR shall provide customers reasonable
quantities of samples from its inventory, such costs to be for
SEPR's account.
ARTICLE 6 - PRICES
------------------
6.01 Pricing.
(a) The Company's current price list for Distributed Products listed
on SCHEDULE A is set forth on SCHEDULE C attached hereto. The
price payable by SEPR will be less a distributor discount also
set forth on SCHEDULE C expressed as a percentage which discount
will apply for the period of the Effective Date and ending on a
date one year thereafter. The Company reserves the right to
change its price list for Distributed Products i) to the extent
that it has changed its price list to its distributors in the
United States, ii) with a maximum increase equal to the increase
in the United States, and iii) with effect from the beginning of
each year of this Agreement by giving four (4) months written
notice to SEPR. The distributor discount may be subject to change
one (1) year from the Effective Date and annually thereafter. At
least three (3) months before the end of each year (measured from
the Effective Date) of this Agreement, the parties shall meet in
order to negotiate in good faith the
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<PAGE> 9
distributor discounts that shall be applicable during the
following year. In the event that the Company and SEPR cannot
agree on the distributor discount within the said three (3) month
period before each new year of the Agreement, the distributor
discount and the price list for the Distributed Products subject
to disagreement shall remain unchanged for the new year and the
Agreement shall, without any further action on the part of either
party, be deemed terminated at the end of such year for the
Distributed Products subject to disagreement. All prices shall be
exclusive of tariffs, duties, sales taxes, use taxes, and like
levies or taxes, and all insurance, shipping, freight and
delivery charges as further defined in SECTION 6.04. All prices
shall be specified and payable in U.S. dollars.
(b) The distributor discount for any Distributed Products added to
this Agreement in accordance with SECTION 1.06(ii) will be the
appropriate North American published list price for the
appropriate quantity less fifteen percent (15%).
6.02 Payment Procedures. Payments for Distributed Products shall be made by
wire transfer in United States Dollars to Company's bank account
designated in writing for such purpose. The terms shall be net thirty
(30) days from invoice. In addition to any rights it may have under
this Agreement or under any law, rule or regulation, Company shall
have the right to cancel any order placed hereunder or to refuse or
delay the shipment thereof, for failure of SEPR to make timely
payments of amounts due hereunder. Lastly, in the event that any
invoiced amount remains unpaid after sixty (60) days from the invoice
date, SEPR agrees to pay interest from that date forward on such
outstanding balance at an interest rate of one and one-half (1 1/2)
percent above the rate quoted from time to time as its prime rate as
announced in New York City, New York by Chase Manhattan Bank;
provided, however, that SEPR's agreement to pay interest on such
overdue obligations does not imply that Company will extend any
maturity dates for such overdue obligations.
6.03 Response to Purchase Orders. Orders for Distributed Products shall be
binding upon the parties upon acceptance by an authorized
representative of Company. All orders will be deemed to reference this
Agreement and will be governed by the terms of this Agreement. Any
term or condition
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<PAGE> 10
set forth on any order or other document submitted by SEPR which is
inconsistent with any term or condition of this Agreement shall be of
no force or effect, unless accepted in writing by an authorized
officer of Company. Acknowledgment of an order shall not constitute
acceptance of any inconsistent term unless specifically so stated
therein.
6.04 Terms of Delivery. Unless otherwise mutually agreed, all shipments of
the Distributed Products by Company shall be prepared for shipment by
surface vessel, F.O.B. Company's manufacturing facility. Company shall
pay:
i) any and all sales or use taxes and like levies or taxes levied by
the United States government or any political sub-divisions
thereof; and
ii) the cost of standard packaging and packing the Distributed
Products for export.
SEPR shall pay all costs and expenses incurred after the F.O.B. point,
including, without limitation, insurance, freight, taxes and import
tariffs and duties. Title to and risk of loss of Distributed Products
shall pass to SEPR upon delivery to the carrier at the F.O.B. point.
ARTICLE 7 - INTELLECTUAL PROPERTY
---------------------------------
7.01 Proprietary Rights. All patents and patent applications, trademarks,
servicemarks, copyrights, tradenames and other proprietary rights in
and with respect to the Distributed Products are and will remain
exclusively the property of the Company. During the term of this
Agreement, SEPR may indicate that it is an authorized distributor of
the Company and may use the trademarks, servicemarks, logos, symbols
and tradenames of the Company applicable to the Distributed Products
in connection with SEPR's advertising, promotion, distribution and
sale of the Distributed Products in the Selling Territory in
accordance with the terms of this Agreement. SEPR shall not remove
from, alter or add to any tradename, label, logo, decal, trademark,
patent number or serial number affixed by the Company to any
Distributed Products. SEPR shall not directly or indirectly obtain or
attempt to obtain at any time any right, title or interest by
registration or otherwise in or to the tradenames, trademarks, symbols
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or designations owned or used by Company. Whenever SEPR is permitted
to employ any trademark or servicemark of Company in any form of
printed material, SEPR shall place an asterisk immediately after and
slightly above the first use of the trademark referring to a
footnotereading "used under license" or "licensed trademark." SEPR
shall notify Company of any use of Company's trademark or tradename
which comes to its attention that may infringe upon Company's
trademark's rights.
7.02 Confidentiality. SEPR shall not use or disclose to third parties any
confidential or proprietary information of Company, including any
drawings, design and manufacturing information, or other proprietary
information it has concerning the Distributed Products delivered to
SEPR hereunder except as authorized in writing by Company or to
fulfill the obligations of this Agreement.
7.03 Indemnification.
(a) Company shall indemnify, defend and hold SEPR harmless from and
against all claims that any Distributed Products infringe any
patent, trademark, servicemark, tradename or other intellectual
property rights in the Selling Territory. Company shall assume
the defense of any suit based on any such claim of infringement
brought against SEPR specifically relating to the Distributed
Products. Company shall pay any damages assessed against or
otherwise payable by SEPR as a result of the final disposition of
any such suit. In the event SEPR is enjoined by reason of
infringement from the sale or use of the Distributed Products,
Company shall, at its sole cost and expense, take all reasonable
steps to procure for SEPR the right to distribute and sell the
Distributed Products. If Company cannot procure such right within
a reasonable time, Company shall within ninety (90) days:
i) modify the Distributed Products to avoid infringement of any
patent or proprietary interest; or
ii) in the event such modification is not feasible, Company
shall refund the full purchase price of all such infringing
Distributed Products and all costs of freight and other
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incidental charges incurred by SEPR and SEPR shall return
such infringing Distributed Products to Company with title
and risk of loss or damage to revert to Company upon
delivery to the carrier at SEPR's point of overseas
shipment.
(b) Company's indemnity under this SECTION 7.03 is conditioned upon:
i) SEPR giving prompt written notice to Company of any such
claim or of the commencement of any such suit, or threats
thereof;
ii) Company having full opportunity to conduct the defense
thereof; and
iii) the cooperation of SEPR in the defense of such claim. SEPR
shall not incur any defense costs for Company's account
without Company's written consent.
ARTICLE 8 - WARRANTY
--------------------
8.01 Product Warranty
(a) Subject to SECTION 8.01(c), Company warrants that the Distributed
Products sold hereunder shall conform to Company's standard
specifications and shall be free from defects in material and
workmanship under normal and proper use in accordance with
instructions and directions of Company applicable thereto;
provided that, SEPR notifies Company in writing of the nature of
the defect within thirty (30) days after such defect is first
reported to SEPR.
(b) Subject to SECTION 8.01(c), should Distributed Products sold
hereunder fail to perform in accordance with Company's
specifications during the warranty period, SEPR shall repair or
replace, as appropriate, the defective Distributed Products in
question. Company shall establish a credit in favor of SEPR (and,
as appropriate, SEPR shall pass such credit through to its
customer(s)) against the purchase price otherwise payable by SEPR
for Distributed Products purchased hereunder in an amount equal
to
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the cost of replacing or repairing such Distributed Products;
provided that:
i) such defect is reported to Company in accordance with the
provisions of SECTION 8.01(a); and
ii) is proven to be the result of the acts or omissions of the
Company.
(c) Company's warranty obligations to SEPR shall be co-extensive with
and limited to the warranty obligations to retail customers
undertaken by Company pursuant to the Company's standard terms
and conditions of sale attached hereto as SCHEDULE D, as the same
may be amended from time to time by Company in its sole
discretion. Any warranty granted by SEPR which extends beyond the
agreed term and scope of the Company's standard terms and
conditions of sale shall be the warranty of SEPR alone and shall
not bind Company.
8.02 Exclusive Warranty and Limitation of Liability. THE EXPRESS WARRANTIES
SET FORTH IN SECTION 8.01 CONSTITUTE THE ONLY WARRANTIES WITH RESPECT
TO THE DISTRIBUTED PRODUCTS SOLD HEREUNDER. COMPANY MAKES NO OTHER
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED (EITHER IN
FACT OR BY OPERATION OF LAW), WITH RESPECT TO THE DISTRIBUTED
PRODUCTS, WHETHER AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR
PURPOSE, OR ANY OTHER MATTER. THE STATED EXPRESS WARRANTIES ARE IN
LIEU OF ALL, AND IN NO EVENT SHALL COMPANY BE HELD LIABLE FOR,
LIABILITIES OR OBLIGATIONS FOR DAMAGES, INCLUDING BUT NOT LIMITED TO
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES OR LOSS OF USE, REVENUE,
OR PROFITS, IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
BREACH OR REPUDIATION OF THIS AGREEMENT BY COMPANY OR THE FURNISHING,
FUNCTIONING OR SEPR'S OR ANY THIRD PARTY'S USE OF ANY DISTRIBUTED
PRODUCTS PROVIDED FOR IN THIS AGREEMENT. SEPR'S SOLE REMEDY FOR
MANUFACTURER LIABILITY OF ANY KIND INCLUDING NEGLIGENCE, WITH
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RESPECT TO ANY DISTRIBUTED PRODUCT FURNISHED UNDER THIS AGREEMENT,
WHETHER THE CLAIMED LIABILITY IS BASED ON A DEFECT, WHETHER
DISCOVERABLE OR LATENT, SHALL BE LIMITED TO THE REMEDIES PROVIDED IN
SECTION 8.01(b). ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ANY
PERSON, INCLUDING EMPLOYEES OR REPRESENTATIVES OF COMPANY, WHICH ARE
INCONSISTENT HEREWITH SHALL BE DISREGARDED BY SEPR AND SHALL NOT BE
BINDING UPON COMPANY. THE WARRANTIES SET FORTH HEREIN MAY BE ASSERTED
BY SEPR ONLY AND NOT SEPR'S CUSTOMERS.
ARTICLE 9 - TERM
----------------
9.01 Term and Additional Term. This Agreement shall, when executed, become
effective and will remain in effect, unless terminated pursuant to
SECTIONS 5.02(a) or 6.01(a) or unless terminated by the Nondefaulting
Party pursuant to SECTION 10.01, for a period ending five (5) years
from the Effective Date. However, if SEPR elects to manufacture all
the Distributed Products listed on SCHEDULE A before the end of the
aforementioned five (5) year period (in accordance with SECTION 9.02)
this Agreement shall terminate with respect to the Distributed
Products listed on SCHEDULE A (but not for Distributed Products
included under SECTION 1.06 ii)) at the date when the Distributed
Product License is fully in force.
9.02 License to Products.
(a) At any time during the term of this Agreement, SEPR may, upon one
(1) year's notice elect to manufacture any one or more of the
Distributed Products listed on SCHEDULE A, under the patent
rights and confidential know-how of Company to manufacture, use
and sell the Distributed Products listed on SCHEDULE A pursuant
to the terms of a license agreement in the form attached hereto
as EXHIBIT D (the "Distributed Product License Agreement").
(b) Any Distributed Products listed on SCHEDULE A terminated from
distribution under this Agreement, pursuant to SECTIONS 5.02(a)
or 6.01(a) shall be licensed to SEPR pursuant to the terms of the
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Distributed Product License Agreement and shall no longer be
distributed by SEPR for the Company.
(c) Upon termination of this Agreement, other than in instances where
SEPR is the Defaulting Party as defined in SECTION 10.01, SEPR
shall obtain rights to manufacture pursuant to the terms of the
Distributed Product License Agreement any of the Distributed
Products listed on SCHEDULE A not already deleted from this
Agreement. Nothing in this Agreement shall require the Company to
license those Distributed Products added in accordance with
SECTION 1.06(ii) to SEPR.
ARTICLE 10 - DEFAULT AND TERMINATION AND EXPIRATION
---------------------------------------------------
10.01 Termination. Either party not in default under this Agreement (the
"Nondefaulting Party") may terminate this Agreement at any time upon
ten (10) days written notice to the other party in default (the
"Defaulting Party") upon the occurrence of any of the following
events:
(a) The Defaulting Party fails to comply with any order or decision
rendered by an arbitrator or a judicial authority in accordance
with SECTION 12.04.
(b) If at any time the Defaulting Party shall generally not pay the
Defaulting Party's debts as they become due or shall admit in
writing its inability to pay its debts, or shall make a general
assignment for the benefit of creditors.
(c) If the Defaulting Party shall commence any case, proceeding or
other action seeking to have an order for relief entered on its
behalf as debtor or to adjudicate the Defaulting Party as
bankrupt or insolvent, or seeking the reorganization,
arrangement, adjustment, liquidation, dissolution or composition
of the Defaulting Party or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or
seeking appointment of a receiver, trustee, custodian or other
similar official for the Defaulting Party or for all or a
substantial part of its assets, or any such case, proceeding, or
other actions against the Defaulting Party
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shall commence after the effective date of this Agreement and
such case, proceeding or other action
i) results in the entry of any order for relief against the
Defaulting Party which is not fully stayed within seven (7)
business days after entry thereof; or
ii) shall remain undismissed for a period of forty-five (45)
days.
10.02 Effect of Termination or Expiration. Upon termination of this
Agreement:
(a) In the event SEPR is the Defaulting Party pursuant to SECTION
10.01, all unfilled orders for Distributed Products shall at the
Company's option, be canceled.
(b) SEPR shall discontinue the use of any tradenames, trademarks,
symbols or designations associated with Company or the
Distributed Products and shall immediately discontinue
designating itself as an authorized distributor of Company.
(c) SEPR shall immediately return to Company all items of proprietary
or confidential information delivered to SEPR hereunder to which
SEPR is not entitled to receive pursuant to the Distributed
Products License Agreement referred to in SECTION 9.02.
ARTICLE 11 - KERLANE
--------------------
11.01 For avoidance of doubt except as provided in SECTION 5.03(b) nothing
in this Agreement shall be construed or interpreted as limiting any
rights of SEPR's affiliate Kerlane to practice or develop its ceramic
fibers technology, to manufacture use and sell its ceramic fibers
products worldwide, to grant or receive some licenses either to
Affiliates or to third parties, to dispose of its assets or of its
intellectual property rights except to the extent that it receives
rights from SEPR pursuant to SECTION 2.02 in which case it shall be
bound by the terms of this Agreement for the products so distributed
by Kerlane. Company and SEPR agree that the Kerlane products listed in
Kerlane's CATALOGUE Ceramic Fibres dated 05/94 attached hereto as
SCHEDULE E are not products which are identical
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to, or which are considered by users as equivalent to, the Distributed
Products.
ARTICLE 12 - FORCE MAJEURE AND LAWS
-----------------------------------
12.01 Force Majeure. The parties hereto shall not be held liable or
responsible for delay or failure to take any actions called for under
this Agreement occasioned by acts of God, force majeure or any cause
beyond the control of the parties, including but not limited to war;
civil disturbances; fire; flood; earthquake; windstorm; unusually
severe weather; acts or defaults of common carriers; accidents; strike
or other labor trouble; lack of or inability to obtain raw materials,
transportation, labor, fuel or supplies; governmental laws, acts,
regulations, embargoes, or orders (whether or not such later prove to
be invalid); any of which shall release the parties from the
performance of this Agreement.
12.02 Compliance with Laws and Regulations. This Agreement shall comply
with and its obligations shall be performed in accordance with the
laws, whether national or supranational, of all jurisdictions in which
the Agreement is to be performed (including the United States). If any
provision of this Agreement constitutes a breach of any applicable law
or is considered to be or will be void or unenforceable, such
provision shall be deemed to be deleted and the remaining provisions
shall continue in full force and effect.
12.03 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Ohio without
regard to rules on choice of law and SEPR hereby consents to submit to
the jurisdiction of the American Arbitration Association located in
New York, New York in the event of any dispute between the parties and
to the jurisdiction of applicable courts in the United States and
elsewhere to enforce any award of said American Arbitration
Association, or to grant any interim relief as set forth in SECTION
12.04.
12.04 Dispute Resolution. In the event of any dispute, claim, question, or
disagreement arising out of or relating to this Agreement or the
breach thereof, the parties hereto shall use their best efforts to
settle such disputes, claims, questions, or disagreements. To this
effect, they shall consult and negotiate with each other in good faith
and, recognizing their
17
<PAGE> 18
mutual interests, attempt to reach a just and equitable solution
satisfactory to both parties. If they do not reach such solution
within a period of thirty (30) days, either party may submit the
dispute to binding arbitration administered by the American
Arbitration Association under its International Arbitration Rules. The
place of arbitration shall be New York, New York and the language of
arbitration shall be English. The number of arbitrators shall be
three, unless the parties agree otherwise. Both parties agree that
time is of the essence in any arbitration. Each party shall submit
their choice of an arbitrator to the Association within five (5)
business days after receiving notice from the Association of an
arbitration proceeding. The arbitrators so selected shall have five
(5) business days to select a third arbitrator. If the arbitrators
selected by the parties cannot agree on a third arbitrator within this
time period, then a third arbitrator shall be selected by the
Association to complete the panel. The parties agree that an
arbitrator may grant a party's request for a preliminary injunction to
minimize damage in an appropriate circumstance. As an aid to
arbitration, either party may also seek assistance from judicial
authorities to provide interim relief, such as an injunction, if
necessary.
ARTICLE 13- GENERAL
-------------------
13.01 Notices. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be deemed
to have been duly given if in writing and delivered personally, or
five (5) business days after being mailed first class, postage
prepaid, registered or certified mail, or if telecopied and confirmed
by one of the preceding methods, as follows:
If to SEPR:
Societe Europeenne des Produits Refractaires
Les Miroirs
18 Avenue d'Alsace
92400 Courbevoie
Attention: Legal Affairs Department
Fax: 33-1-47-62-36-83
18
<PAGE> 19
If to Company:
Unifrax Corporation
2351 Whirlpool Street
Niagara Falls, New York 14305
Attention: Vice President Sales & Marketing
Fax: 716-278-2963
Any party may change the address to which such communications are to
be directed to it by giving written notice to the other in the manner
specified in this SECTION 13.01.
13.02 Entire Agreement. This Agreement and the attached schedules referred
to herein set forth the entire agreement and understanding of the
parties in respect to the transactions contemplated hereby and
supersede all prior agreements, arrangements and undertakings relating
to the subject matter hereof.
13.03 Successors and Assigns. This Agreement shall be binding on and inure
to the benefit of SEPR and Company and their respective successors.
Except as provided in SECTION 2.02, and except that Company must
assign all of its rights and obligations herein to any purchaser or
assignee of substantially all of NAF's assets, this Agreement and the
rights and obligations of the parties thereto may not be assigned
without the prior written consent of the other party hereto.
13.04 Amendment. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties
or conditions hereof may be waived, only by a written instrument
executed by the parties hereto, or, in the case of a waiver, by or on
behalf of the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or of any breach of any term,
covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or waiver
of any other condition or of any breach of any other term, covenant,
representation or warranty.
19
<PAGE> 20
13.05 Headings/Counterpart. The article or section headings contained in
this Agreement are for convenient reference only, and shall not in any
way affect the meaning or interpretation of this Agreement. This
Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which shall
constitute but one.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in two original copies by their duly authorized representatives as of the day
and year first above written.
UNIFRAX CORPORATION SOCIETE EUROPEENNE DES
PRODUITS REFRACTAIRES
By:____________________________ By:____________________________
Name: Christopher C. Clarke Name: _________________________
Title: Attorney-In-Fact Title:___________________________
20
<PAGE> 21
FIBERS N. AMERICA
DISTRIBUTED PRODUCTS SALES VOLUME
1984 ACTUAL AND 1995 PLAN
- -------------------------
<TABLE>
<CAPTION>
QUANTITY
--------
UNIT OF 1994 1995
MEASURE ACTUAL PLAN
------- ------ ----
<S> <C> <C> <C> <C>
FIBERFRAX LONG STAPLE LBS. [ * ]
FIBERFRAX PH BLANKET SF [ * ]
FIBERFRAX 972H PAPERS AND BB2H (BURN GRADES) SF [ * ]
FIBERFRAX PAPER-880 SERIES SF [ * ]
FIBERFRAX PAPER-560 SERIES SF [ * ]
FIBERFRAX PAPER-440 SERIES SF [ * ]
FIBERFRAX PAPER-110 SERIES SF [ * ]
FIBERFRAX ROPE LF [ * ]
FIBERFRAX HIGH DENSITY ROPE LF [ * ]
FIBERFRAX SQUARE BRAID LF [ * ]
FIBERFRAX ROUND BRAID LF [ * ]
FIBERFRAX TAPE LF [ * ]
FIBERFRAX CLOTH SF [ * ]
FIBERSIL CLOTH SY [ * ]
FIBERSIL TAPE LF [ * ]
FIBERMAX BULK FIBER LBS. [ * ]
FIBERMAX MAT SF [ * ]
FIBERMAX LS MAT SF [ * ]
</TABLE>
(a) Based on 1/2" product.
(b) Based on 1" product.
SCHEDULE B
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
1
<PAGE> 22
Schedule A1/B1
DISTRIBUTED PRODUCTS PURCHASES
1995 ACTUAL QUANTITIES
<TABLE>
<CAPTION>
PRODUCT UNIT OF MEASURE SUBSIDIARY TOTAL OTHER EXPORTS TOTAL GRAND TOTAL
- ------- --------------- ---------------- ------------------- -----------
<S> <C> <C> <C> <C>
HSA-K Fiber LBS. [ * ]
HSA-HP Fiber LBS. [ * ]
Regular Till Fiber LBS. [ * ]
Chopped Till Fiber LBS. [ * ]
EF-119 Milled Fiber LBS. [ * ]
Long Staple Fiber LBS. [ * ]
HSA Paper SF [ * ]
110 Paper SF [ * ]
440 Paper SF [ * ]
880 Paper SF [ * ]
972 Paper SF [ * ]
882 Paper SF [ * ]
Rollboard SF [ * ]
Fibermax Bulk LBS. [ * ]
Fibermax Mat SF [ * ]
Fiberfrax Rope LF [ * ]
Fiberfrax HD Rope LF [ * ]
Square Braid LF [ * ]
Round Braid LF [ * ]
Cloth SF [ * ]
Fiberfrax Tape LF [ * ]
Fiberfrax Sleeving SF [ * ]
Yarn/Roving/Wicking LBS. [ * ]
Fibersil Tape LF [ * ]
Fibersil Cloth SY [ * ]
Flexweave LY [ * ]
Flexweave Tape EA. [ * ]
Control Total [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
2
<PAGE> 23
SCHEDULE C
DISTRIBUTED PRODUCTS
DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
EUROPE/BRAZIL SPECIAL PRICING
CONTAINER NON-CONTAINER INDENT AUSTRALIA
--------- ------------- ------ ---------
<S> <C> <C> <C>
Fiberfrax Long Staple PH Blanket [ * ]
Fiberfrax 972-H Papers [ * ]
Fiberfrax Paper 880 Series [ * ]
Fiberfrax Paper 550 Series [ * ]
Fiberfrax Paper 440 Series [ * ]
Fiberfrax Paper 110 Series [ * ]
Fiberfrax Rope [ * ]
Fiberfrax High Density Rope [ * ]
Fiberfrax Square Braid [ * ]
Fiberfrax Cloth and Tape [ * ]
FibersiI Cloth [ * ]
Fibermax Bulk Fiber [ * ]
Fibermax Mat [ * ]
Fibermax LS Mat [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
3
<PAGE> 1
Exhibit 10.8
DISTRIBUTED PRODUCT LICENSE AGREEMENT
This Agreement is made as of February 29, 1996, by and between Unifrax
Corporation (formerly named The Carborundum Company), a Delaware corporation
having offices at 2351 Whirlpool Street, Niagara Falls, New York 14305
(hereinafter known as the "Licensor"), and Societe Europeenne des Produits
Refractaires, a French company having offices at "Les Miroirs", 18 Avenue
d'Alsace, 92400 Courbevoie (hereinafter known as "Licensee", collectively
"parties").
WHEREAS The British Petroleum Company p.l.c. ("BP") is the indirect owner
of The Carborundum Group and the Licensor which includes the North American
Ceramic Fibers Division ("NAF") and the patents, trademarks and other
intellectual property relating to the world-wide ceramic fibers business
presently conducted by The Carborundum Group and NAF; and
WHEREAS SEPR is in the process of acquiring The Carborundum Group from
indirect wholly-owned subsidiaries of BP and has entered into a stock purchase
agreement (the "Stock Purchase Agreement") to that effect, under the condition,
inter alia, that the parties hereto enter into this Agreement.
WHEREAS, Licensor and Licensee have entered into a Product Distribution
Agreement, which terms include the granting of a License to Licensee to
manufacture certain products.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable considerations, it is mutually agreed as follows:
ARTICLE 1 - DEFINITIONS
1.01 In this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
<PAGE> 2
a) "Effective Date" means the Effective Date of the Product
Distribution Agreement.
b) "Territory" means the world, excluding the United States (and its
territories), Canada and Mexico.
c) "Licensed Distributed Products" means the products as defined in
Article 1.06 of the Product Distribution Agreement.
d) "Licensor's Patents" means those patents and patent applications
in existence as of the License Grant Date under Article 2.01, on
a product by product basis, and any future patents or patent
applications claiming priority from such patents or patent
applications which are owned or controlled by the Licensor in the
sense of having the right to grant licenses thereunder without
accounting to others, which patents would be infringed by the
manufacture, use or sale of the Licensed Distributed Products.
e) "Confidential Know How" means that technical information and
trade secrets of a party, such as data, formulae, sketches,
operating data, drawings, reports, techniques and other
information that is not, as of the License Grant Date under
Article 2.01, on a product by product basis, generally known or
easily accessible to third parties, provides a commercial
advantage in its use in relation to the Licensed Distributed
Product, and is necessary for the manufacture, use or sale of the
Licensed Distributed Products, which such party has the right to
disclose without accounting therefor to others.
f) "Licensed Technology" means the Licensor's Patents, the
Confidential Know How and all non-confidential technical
information as of the License Grant Date under Article 2.01, on a
product by product basis, necessary for the manufacture, use or
sale of the Licensed Distributed Products.
g) "Affiliate" means any company of which a party hereto now or
hereafter owns or controls, directly or indirectly, at least 50%
of the stock having the right to vote for directors thereof. For
the purpose of this definition, the
<PAGE> 3
stock owned or controlled by a particular company shall be deemed
to include all stock owned or controlled directly or indirectly
by any other company of which that particular company owns or
controls, directly or indirectly, at least 50% numerically of the
stock having the right to vote for directors thereof. When used
in connection with Licensor, the term "Affiliate" shall also
include any company while it directly or indirectly controls the
Licensor, including The British Petroleum Company p.l.c., a
corporation of England, and all affiliates of that company. When
used in connection with Licensee, Affiliate shall also include
any company while it directly or indirectly controls Licensee,
including Compagnie de Saint-Gobain, and all affiliates of that
company.
h) "Net Sales Price" means the gross invoiced price of the Licensed
Distributed Products as invoiced by Licensee or its Affiliate,
less trade discounts, prepaid shipping, installation and packing
charges, agents' commissions if paid by the Licensee, sales,
excise and use taxes applicable to the sale if paid by the
Licensee, returns and allowances to other than an Affiliate. In
the case of a Licensed Distributed Product manufactured by the
Licensee and used by the Licensee, an Affiliate or a third party,
but not sold, the Net Sales Price shall be Licensee's applicable
sales list price of such Licensed Distributed Product or, if
there is no applicable list price, the fair market value of such
Licensed Distributed Product taking into consideration the sales
list price of similar Licensed Distributed Products, less
deductions as in the case of Licensed Distributed Products which
are sold.
i) "Agreement" shall mean this Distributed Product License
Agreement.
j) "Product Distribution Agreement" means the Product Distribution
Agreement entered into between Licensee and Licensor dated the
date hereof.
k) "Company" means Unifrax Corporation, a Delaware corporation and
an indirect wholly owned subsidiary of The British Petroleum
Company p.l.c. ("BP").
<PAGE> 4
l) "The Carborundum Group" means "NewCo", as defined in the Stock
Purchase Agreement, and Carborundum Ventures Inc. ("CVI"),
Carborundum Resistant Materials Ltd., Carborundum Realty Pty.
Ltd., The Carborundum Company Limited, Carborundum Belgium, S.A.,
Carborundum Holdings Ltda., Carborundum do Brasil Ltda.,
Carborundum Caribbean, Inc., Carborundum Textil Ltda.,
Carborundum Deutschland GmbH., and Carborundum Technical Ceramics
GmbH., and their subsidiaries, excluding in each case all assets,
employees, activities, liabilities or obligations relating to
NAF, and excluding the assets and liabilities of (but not CVI's
equity investment in) Toshiba-Monofrax Co., Ltd.
m) "NAF" means the ceramic fibers business of the Company, located
in the United States (and its territories), Canada and Mexico.
n) "Non-Compete Agreement" means the non-compete agreement entered
into between SEPR, BP and NAF and effective the date hereof.
o) "License Grant Date" means the date the license grant under
Article 2.01 becomes effective, on a product by product basis, as
follows:
1.) For products under Article 9.02(a) of the Product
Distribution Agreement, 12 months after Licensor's receipt of
Licensee's notice to manufacture a Distributed Product;
2.) For products under Article 9.02(b) of the Product
Distribution Agreement, the date a Distributed Product is
terminated from the Product Distribution Agreement;
3.) For products under Article 9.02(c) of the Product
Distribution Agreement, the date the Product Distribution
Agreement terminates.
ARTICLE 2 - GRANT
2.01 Licensor grants, subject to the outstanding exclusive license grants
in Japan and South Africa, if any, a royalty-bearing license under the
Licensor's Licensed Technology to make, use and sell the Licensed Distributed
Products in the Territory. This license shall become effective on a Licensed
Distributed Product by Licensed Distributed Product basis, upon the License
Grant Date. Subject to the Non-
<PAGE> 5
Compete Agreement and the Product Distribution Agreement between the parties,
Licensor is free to make, use or sell Licensed Distributed Products in the
Territory.
2.02 Licensor grants Licensee the right to receive and use Licensed
Technology, on a product by product basis to prepare and test manufacturing of
the Licensed Distributed Product, during the period of 12 months prior to the
License Grant Date.
2.03 The License granted in this Article 2 shall include the right to grant
sublicenses within the Territory, providing that, for a period of [ * ] from the
Effective Date, the party receiving such sublicense [ * ], said sublicense to be
effective only for so long as [ * ]. No other sublicense rights are granted
herein. This Article does not preclude partial assignment as allowed under
Article 11.
2.04 The Royalty for each Licensed Distributed Product, for the period from
the License Grant Date, and ending five (5) years from the Effective Date shall
be, on a yearly basis (pro-rated to the actual number of months elapsed for
royalty payment periods of less than one year), [ * ] of the total Net Sales
Price of all sales of such Distributed Product in the Territory during the
period beginning on the thirteenth (13th) month through and including the
twenty-fourth (24th) month preceding the License Grant Date. Payment shall be as
set forth in Article 8.
2.05 For a period starting five (5) years from the Effective Date and
ending ten (10) years from the Effective Date, Licensee shall pay a yearly
royalty (pro-rated to the actual number of months elapsed for royalty payment
periods of less than one year) of [ * ] of the Net Sales Price of the Licensed
Distributed Products manufactured under this license and sold during a calendar
year. Payment shall be as set forth in Article 8.
2.06 Notwithstanding Article 2.04, if the Product Distribution Agreement is
terminated due to default of the Licensor, then the yearly royalty (pro-rated to
the actual number of months elapsed for royalty payment periods of less than one
year) for the period from the termination date and ending five (5) years from
the Effective Date shall be [ * ] of the Net Sales Price of the Licensed
Distributed Products manufactured under this license and sold during a calendar
year. Thereafter,
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
<PAGE> 6
royalties shall be due as set forth in Article 2.05. Payment shall be as set
forth in Article 8.
2.07 If Licensee has paid yearly royalties when due for the 10 year period
from the Effective Date, and has not breached any obligations of this Agreement,
then, upon such events, the License granted in Article 2.01 shall thereafter be
royalty free.
ARTICLE 3 - TECHNICAL AND ENGINEERING SERVICE
3.01 For the implementation of the Licensed Technology, it is understood
that Licensee will require certain technical services from Licensor, such as the
receipt of certain technical information and data, the benefit of the services
of certain technical personnel, and general technical assistance. For a period
of six (6) years from the Effective Date, Licensor shall provide such technical
services and the services of technical personnel as are mutually agreed by the
parties to be necessary. Costs shall be at a per diem rate of U.S. $890 per
man-day. Both parties recognize that the services of such personnel shall
consist principally of consultation and technical advice in connection with the
manufacture of the Licensed Distributed Products or the sending of available
written technical information upon Licensee's request. If such services are
required at Licensee's site, such services shall be limited to no more than two
man-weeks total in any one calendar year. Licensee shall reimburse Licensor per
Article 3.03 for such site visit travel costs. In addition to this technical
service, Licensor shall deliver, free of charge to Licensee, ten (10) months
prior to the License Grant Date for each License Distributed Product, or product
family, a know-how book enabling Licensee to manufacture such products. This
know-how book shall consist of (i) a compilation of operation manuals and
written standard operating procedures that are in existence as of the License
Grant Date and, (ii) if necessary, additional written documents for those areas
where such documents do not exist, in order to enable Licensee to manufacture
such products. One month prior to the License Grant Date, Licensor shall deliver
free of charge to Licensee, if relevant, any further such manuals or written
procedures that have been modified or newly created for the Licensed Technology.
This requirement of providing a know-how book is not to be construed as
requiring Licensor to furnish information in the form of specific services such
as preparation of engineering design specifications, detailed design packages,
or other services such as required for construction.
<PAGE> 7
3.02 For a period of six (6) years from the Effective Date, Licensor agrees
to provide engineering service to Licensee or its Affiliates for specific
projects such as plant designs or engineering services outside of the scope of
routine technical assistance. Such engineering service shall be at the
reasonable convenience of Licensor. The manpower cost shall be a per diem rate
of U.S. $890 per man-day.
3.03 If the services provided by Licensor requires Licensor's personnel to
travel to Licensee's or Affiliate's locations, then the party receiving such
services shall pay Licensor's reasonable out-of-pocket travel costs. Such
reasonable costs shall be business class air travel and reasonable business
hotel accommodations.
3.04 For a period of six (6) years from the Effective Date, Licensee and
its Affiliates shall have the right to visit Licensor's manufacturing facilities
producing Licensed Distributed Products, provided that such visit(s) shall be
limited to no more than two employees of the Licensee or its Affiliates, for a
maximum of two weeks in any calendar year. The parties shall agree on the length
and the timing of such visit(s).
3.05 Licensor agrees that the Licensed Technology disclosed to Licensee
under this Agreement shall be that Licensed Technology that is currently used by
Licensor as of the License Grant Date.
3.06 Upon Licensee's request, Licensor agrees to provide technical and
engineering service under the terms of this Article 3, on a product by product
basis to prepare and test manufacturing of the Licensed Distributed Product,
during the 12 months prior to the License Grant Date.
ARTICLE 4 - CONFIDENTIALITY
4.01 Licensee agrees:
a) To keep confidential and not disclose to any third party, all
Confidential Know How received under this License Agreement from
Licensor, whether received before or after this Agreement,
except:
1) such of said information as now is or hereafter becomes
published or otherwise generally available to the public
through no act or failure to act of the Licensee, or
<PAGE> 8
2) such of said information the Licensee can show by written
record was in its possession prior to receipt hereunder,
3) such of said information which is disclosed to the Licensee
by a third party who did not obtain such information
directly or indirectly from the Licensor under an obligation
of secrecy.
4) such of said information that Licensee can show, by clear
and convincing written evidence, was independently developed
by Licensee without access to the Confidential Know How.
b) Even after such information becomes generally available to the
public, not to disclose the fact that such information was
furnished to the Licensee by the Licensor unless written approval
is obtained from the other party.
c) Not to put to any use, except as expressly licensed herein, any
information either party is obligated to keep in confidence under
this Article 4.
4.02 This obligation of confidentiality for Licensor and Licensee shall
extend for a period of 20 years from the date of this Agreement and shall
survive the expiration or termination of this Agreement.
4.03 Any affiliate of Licensee that is sublicensed under this Agreement
shall be required to agree in writing to be bound by confidential provisions at
least as strict as contained in this Agreement.
4.04 The Licensor agrees:
a) To keep confidential and not disclose to any third party, all
confidential information received under this License Agreement
from the Licensee, whether received before or after the Effective
Date, except:
1) such of said information as now is or hereafter becomes
published or otherwise generally available to the public
through no act or failure to act of the Licensor, or
2) such of said information the Licensor can show by written
record was in its possession prior to receipt hereunder,
3) such of said information which is disclosed to the Licensor
by a third party who did not obtain such information
directly or indirectly from Licensee under an obligation of
secrecy,
<PAGE> 9
4) such of said information that Licensor can show, by clear
and convincing written evidence, was independently developed
by Licensor without access to the confidential information.
b) Even after such information becomes generally available to the
public, not to disclose the fact that such information was
furnished to the Licensor by the Licensee unless written approval
is obtained from the Licensee.
c) Not to put to any use, except as expressly licensed herein, any
information Licensor is obligated to keep in confidence under
this Article 4.
ARTICLE 5 - WARRANTIES AND PATENT INFRINGEMENT
5.01 Nothing in this Agreement shall be construed as a warranty or
representation by Licensor as to the validity or scope of any Licensor's Patent
or trade secret, or the confidentiality of any Confidential Know How.
5.02 To Licensor's knowledge, the current use of the Licensed Technology,
in the Territory, does not infringe any valid patent. No claim by any third
party contesting the validity, enforceability, use or ownership of the Licensed
Technology has been made, is currently outstanding or, to Licensor's knowledge,
is threatened.
5.03 OTHER THAN IN THIS ARTICLE 5, LICENSOR MAKES NO REPRESENTATION OR
WARRANTIES OF ANY KIND WHETHER EXPRESSED OR IMPLIED, BY STATUTORY LAW OR
OTHERWISE WITH RESPECT TO ITS DEVELOPMENT, MANUFACTURE, USE, SALE OR DISPOSITION
OF THE LICENSED TECHNOLOGY PROVIDED BY LICENSOR UNDER THIS AGREEMENT, AND ANY
SUCH WARRANTIES ARE HEREBY DISCLAIMED, INCLUDING ANY WARRANTABILITY OF VALUE,
USE, MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE.
5.04 If during the term of this Agreement, Licensee shall discern that one
or more third parties are infringing Licensor's Patents in the Territory, then
Licensee shall promptly report such activity to Licensor, providing in such
report all details concerning the kind and character of the infringement, and
other pertinent information that Licensee may have.
<PAGE> 10
5.05 Upon receipt of such notice, the parties shall meet and confer to
review the matter as soon as reasonably possible. Upon completion of such
review, the parties shall mutually determine that there exists or there does not
exist reasonable likelihood of infringement. If the parties mutually determine
that reasonable likelihood of infringement does exist, and the parties agree on
a course of action to be taken, then all third party costs associated therewith
shall be shared equally, it being understood that each party shall absorb its
own costs. If the parties cannot mutually decide on the likelihood of
infringement or the course of action, the following options shall be available:
1) The Licensor may take complete charge of the matter in which event
Licensor shall be responsible for all costs associated therewith. Any
recoveries which may be gained in action commenced by Licensor shall
be entirely the property of Licensor.
2) In the event the Licensor decides not to commence and pursue an action
to enjoin such infringement, Licensee shall be entitled, at its
expense, to commence the action in its name and shall be entitled to
name Licensor as a party plaintiff in the event that the rules then
pertaining shall require the naming of the owner of the Licensed
Patents for purpose of such infringement action. Any recoveries which
shall be gained in any such action commenced by Licensee shall be the
property of Licensee. Licensee shall not be free to settle the same
without the consent of Licensor to the extent such settlement lessens
the rights of Licensor.
ARTICLE 6 - INDEMNIFICATION
6.01 Licensee agrees to indemnify, defend and hold harmless Licensor and
its officers, employees and agents from any and all losses arising as a result
of or relating to:
a) Licensee's performance of the Agreement;
b) Licensee's provision of services, marketing, developing,
manufacturing, or any related activities of any nature whatsoever
arising out of Licensee's or its Affiliates manufacture, use or
sale of the Distributed Products or Licensed Technology; or;
c) any third party and/or Affiliates use of the Distributed Products
or Licensed Technology supplied by Licensee;
<PAGE> 11
except, in each case, to the extent indemnification or defense of Licensor for
such losses is prohibited by applicable law or is otherwise covered by Article
6.02. Licensee shall in any event be obligated to defend Licensor against any
proceeding or causes of action arising out of the foregoing activities, and to
the extent Licensor has incurred any reasonable attorney fees or defense cost,
Licensee will promptly reimburse Licensor for such fees and costs provided,
however, in the event that it is determined in a final and nonappealable
judgment by a court of competent jurisdiction that such obligation of defense
was prohibited by applicable law, Licensor shall reimburse Licensee for such
defense costs.
6.02 Licensor will indemnify Licensee to the extent arising from or
attributable to any breach or failure by Licensor or its Affiliates to perform
any provision, representation, warranty, covenant or agreement in this
Agreement.
6.03 IN THE EVENT OF BREACH OF THIS LICENSE, NEITHER LICENSEE NOR LICENSOR
SHALL BE LIABLE FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES
INCLUDING LOSS OF USE, REVENUE OR PROFIT, REGARDLESS OF THE FORESEEABLITY OF OR
NOTICE TO LICENSOR OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 7 - TERM
7.01 The term of the license granted in Article 2.0 shall be for a)
Licensed Patents, the duration of the patent in the relevant Territory, and for
b) Confidential Know How, for as long as the Know How does not reach the public
domain.
7.02 Unless terminated under Article 7.03, the term of the Agreement shall
be the longest of the term for the grant of licenses under this Agreement. The
party believing the Agreement has terminated due to termination of the grants
hereunder shall provide evidence to the other party supporting such belief prior
to any such termination coming into effect.
7.03 Should Licensee or its Affiliates breach the third party sub-license
restriction contained in the license grants, as determined by arbitration under
Article 13, Licensor shall give written notification to Licensee. If in less
than thirty (30) days of such notification Licensee has not remedied the defect
according to the arbitration
<PAGE> 12
award, Licensor may give further written notice immediately terminating the
Agreement. Upon termination under this Article 7.03, Licensee shall have no
further rights in the Licensed Technology except that [ * ]. Such right shall be
non-exclusive. Such termination and continuing license shall be without
prejudice to all other rights and remedies available to Licensor. If Licensee's
breach is for [ * ], then upon termination [ * ].
ARTICLE 8 - BOOKS, RECORDS AND PAYMENT
8.01 Licensee shall keep and maintain and require its Affiliate
sublicensees to keep and maintain, true and accurate accounts and records to
show the quantity, sales price and manufacturing costs of those Distributed
Products subject to a royalty under Article 2. At any and all reasonable times,
taking into account the impact on the party's current operations, the licensing
party's authorized representative shall have the right to inspect or copy any
and all such accounts and records and to make copies or extracts therefrom for
the purpose of verifying the correctness of the royalties payable hereunder.
Such inspection shall be at the sole expense of the Licensor unless it is
determined that annual royalties were understated by more than twenty (20%)
percent, in which case the Licensee shall reimburse the Licensor for all costs
of such inspection.
8.02 Within thirty (30) days after the end of each calendar year, Licensee
shall furnish to Licensor a statement certified by a responsible officer of
Licensee showing in detail the Net Sales of those Licensed Distributed Products
having a royalty sold by Licensee and its Affiliates during the applicable year,
the basis for Licensee's calculation of the amount due, and the payment owed.
Payment shall be due at the time of the statement to Licensor.
8.03 Payment shall be by wire transfer, in United States Dollars, to
Licensor's account as notified in writing to Licensee from time to time.
8.04 Licensee shall pay any sales, use or similar taxes applicable, if any,
to any payment to Licensor. Licensee shall provide proof of such tax payment to
Licensor
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
<PAGE> 13
sufficient for Licensor to take any tax credits allowed by its governmental
authority. Upon such tax credit being allowed to Licensor, Licensor shall refund
the amount of such allowed credit to Licensee.
8.05 Payments received by Licensor thirty (30) days after a first written
request stating that such payment was due to Licensor shall accrue interest
pro-rated from the due date to the time of payment, at an annual rate of one and
one-half (1 1/2) percent above the rate quoted from time to time as its price
rate as announced in New York City, New York, by Chase Manhattan Bank.
ARTICLE 9 - EXPORT OF TECHNOLOGY
9.01 Licensee hereby acknowledges and accepts that the Licensed Technology
includes U.S. technical information and therefore it is subject to the Export
Administration Regulations (15 CFR, Part 730-799) of the United States
Department of Commerce and the Arms Export Control Act (22 USC 2778) as
implemented by the International Traffic in Arms Regulations (22 CFR Part 120 et
al) and other U.S. government regulations relating to export or re-export of
U.S. technical data and equipment and products produced therefrom. Licensee
expressly agrees to comply fully with all such U.S. government regulations to
the extent they apply to any Licensed Technology or technical information made
available to Licensee under this Agreement.
9.02 Licensor shall be responsible for any license required under 9.01
necessary to transfer the Licensed Technology from the Licensor to the Licensee.
ARTICLE 10 - NOTICE
10.01 All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be deemed to have been duly
given if in writing and delivered personally, or five (5) business days after
being mailed first class, postage prepaid, registered or certified mail, or if
telecopied and confirmed by one of the preceding methods, as follows:
<PAGE> 14
If to Licensee:
Societe Europeenne des Produits Refractaires
Les Miroirs
18 Avenue d'Alsace
92400 Courbevoie
Attention: Legal Affairs Department
Fax: 33-1-47-62-36-83
If to Licensor:
Unifrax Corporation
2351 Whirlpool Street
Niagara Falls, New York 14305
Attention: Vice President, Sales & Marketing
Fax: 716-278-2963
Any party may change the address to which such communications are to be directed
to it by giving written notice to the other in the manner specified in this
SECTION 10.01.
ARTICLE 11 - ASSIGNMENT
11.01 Licensee shall not have the right to assign the Agreement unless
Licensor approves of such assignment in writing, except Licensee may assign the
Agreement to a wholly owned Affiliate of Licensee. Licensee may also assign this
Agreement to a third party that has acquired substantially all of Licensee's
assets acquired under the Stock Purchase Agreement and related to the ceramics
fibers business. Licensee may assign this Agreement to a more than 50% owned
Affiliate with Licensor's written approval, which approval will not be
unreasonably withheld.
11.02 Licensee may partially assign this Agreement on a country by country
basis to a third party that has acquired in each of the United Kingdom, Germany,
Australia or Brazil, substantially all of Licensee's assets that are acquired
under the Stock Purchase Agreement and relates to the ceramics fibers business.
This partial assignment is subject to Licensee giving Licensor the right to
match any bonafide bid received by Licensee for Australia, Brazil, or Europe
(Europe as a whole, including Licensees' existing ceramic fibers businesses).
<PAGE> 15
11.03 Licensor shall not assign this Agreement to a third party without the
written permission of Licensee, which permission will not be unreasonably
withheld, except to a third party that acquires substantially all the assets of
NAF, in which case Licensor shall be obligated to assign this Agreement to that
third party.
11.04 Any purported assignment by Licensee in violations of the provisions
of this Article 11 shall be void.
ARTICLE 12 - FORCE MAJEURE
12.01 The parties hereto shall not be held liable or responsible for delay
or failure to take any actions called for under this Agreement occasioned by
acts of God, force majeure or any cause beyond the control of the parties,
including but not limited to war; civil disturbances; fire; flood; earthquake;
windstorm; unusually severe weather; acts or defaults of common carriers;
accidents; strike or other labor trouble; lack of or inability to obtain raw
materials, transportation, labor, fuel or supplies; governmental laws, acts,
regulations, embargoes, or orders (whether or not such later prove to be
invalid); any of which shall release the parties form the performance of this
Agreement.
ARTICLE 13 - ARBITRATION
13.01 In the event of any dispute, claim, question, or disagreement arising
out of or relating to this Agreement or the breach thereof, the parties hereto
shall use their best efforts to settle such disputes, claims, questions, or
disagreements. To this effect, they shall consult and negotiate with each other
in good faith and, recognizing their mutual interests, attempt to reach a just
and equitable solution satisfactory to both parties. If they do not reach such
solution within a period of thirty (30) days, either party may submit the
dispute to binding arbitration administered by the American Arbitration
Association under its International Arbitration Rules. The place of arbitration
shall be New York City, New York, and the language shall be English. The number
of arbitrators shall be three, unless the parties agree otherwise. Both parties
agree that time is of the essence in any arbitration. Each party shall submit
their choice of an arbitrator to the Association within five (5) business days
after receiving notice from the Association of an arbitration proceeding. The
arbitrators so selected shall have five (5) business days to select a third
arbitrator. If the arbitrators
<PAGE> 16
selected by the parties cannot agree on a third arbitrator within this time
period, then a third arbitrator shall be selected by the Association to complete
the panel. The parties agree that the arbitrators may grant a party's request
for a preliminary injunction to minimize damages. As an aid to arbitration,
either party may also seek assistance from judicial authorities to provide
interim relief, such as an injunction, if necessary.
ARTICLE 14 - APPLICABLE LAW
14.01 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio without regard to rules on choice
of law and Licensee hereby consents to submit to the jurisdiction of the
American Arbitration Association located in New York, New York, and to the
jurisdiction of applicable courts in the United States or elsewhere, to enforce
any award of said American Arbitration Association, or to grant interim relief.
ARTICLE 15 - MISCELLANEOUS
15.01 This Agreement may be amended, modified, superseded or canceled, and
any of the terms, covenants, representations, warranties or conditions hereof
may be waived, only by a written instrument executed by the parties hereto, or,
in the case of a waiver, by or on behalf of the party waiving compliance. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of any breach of any term,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or waiver of any other condition or of
any breach of any other term, covenant, representation or warranty.
15.02 This Agreement shall comply with and its obligations performed in
accordance with the laws, whether national or supranational of all jurisdictions
in which the Agreement is to be performed (including the United States). If any
provision of this Agreement constitutes a breach of any applicable law or is
considered to be or will be void or unenforceable, such provision shall be
deemed to be deleted and the remaining provisions shall continue in full force
and effect.
<PAGE> 17
15.03 The article or section headings contained in this Agreement are for
convenient reference only, and shall not in any way affect the meaning or
interpretation of this Agreement. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which shall constitute but one.
15.04 For avoidance of doubt, nothing in this Agreement shall be construed
or interpreted as limiting any rights of Kerlane (a subsidiary of Licensee
involved in the manufacturing and selling of ceramic fibers) to practice or
develop its ceramic fibers technology, to manufacture, use and sell its ceramic
fibers products worldwide, to grant or receive licenses either to Affiliates or
to third parties, to dispose of its assets or of its intellectual property
rights unless and to the extent that:
a) Kerlane has received any Confidential Know How as defined in this
Agreement, or
b) Kerlane is a sub-licensee of the Licensed Technology, in which case Kerlane
will be bound by the obligations with respect to a Licensee contained in
this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed by the respective duly authorized officers.
Societe Europeenne des Unifrax Corporation
Produits Refractaires
LICENSEE LICENSOR
By:______________________ By:_____________________
Name:____________________ Name: Christopher C. Clarke
Title:_____________________ Title: Attorney-In-Fact
<PAGE> 18
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Australia FIBERFRAX A205041 09/19/01
Australia INSULFRAX A586,018
</TABLE>
<PAGE> 19
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Benelux FIBERFRAX 053736 09/07/95
Benelux INSULFRAX 530990 03/11/03
</TABLE>
<PAGE> 20
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Brazil FIBERFRAX 007531788 11/23/02
Brazil FIBERFRAX 007531800 10/19/02
Brazil FIBERFRAX 606872086 11/23/02
BRAZIL MOLDAFRAX 815177500 03/24/02
BRAZIL MOLDAFRAX 815177518 03/24/02
Brazil FIBERFRAX 68759765
</TABLE>
<PAGE> 21
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Denmark INSULFRAX 3749/94 06/10/04
</TABLE>
<PAGE> 22
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Finland INSULFRAX 134417 10/05/04
</TABLE>
<PAGE> 23
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
France INSULFRAX 93479060 08/03/03
</TABLE>
<PAGE> 24
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Great Britain FIBERFRAX 708068 06/13/01
Great Britain FIBERFRAX 708070 06/13/01
Great Britain FIBERFRAX 708071 06/13/01
Great Britain FIBERFRAX 709279 07/28/01
Great Britain INSULFRAX 1529620
</TABLE>
<PAGE> 25
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Ireland INSULFRAX 156,959 09/23/00
Ireland INSULFRAX 156,960 09/23/00
</TABLE>
<PAGE> 26
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Italy FIBERFRAX 475003 05/23/06
</TABLE>
<PAGE> 27
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Japan FIBERFRAX 681946 07/23/05
Japan FIBERFRAX 1132630 07/17/05
</TABLE>
<PAGE> 28
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Norway INSULFRAX 935,848
</TABLE>
<PAGE> 29
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
South Africa FIBERFRAX 664255 10/19/96
</TABLE>
<PAGE> 30
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Sweden FIBERFRAX 115994 04/22/96
Sweden INSULFRAX 260808 09/16/04
</TABLE>
<PAGE> 31
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Switzerland FIBERFRAX 336779 01/08/05
</TABLE>
<PAGE> 32
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Turkey INSULFRAX 147848 10/04/03
</TABLE>
<PAGE> 33
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
Venezuela DURABOARD 9053/94
Venezuela DURABLANKET 9055/94
Venezuela FIBERFRAX 7586/88
Venezuela FIBERFRAX 7587/88
Venezuela FILFRAX 19071/89
Venezuela FIREPUTTY 7583/88
Venezuela FIREPUTTY 7584/88
Venezuela FIX-LOC 9060/94
Venezuela LDS MOLDABLE 905/94
Venezuela MODULFRAX-Power Loc 19081/89
Venezuela POWER LOC 9058/94
Venezuela QF-180 9059/94
Venezuela STUD-LOC 9061/94
Venezuela WELD-LOC 9062/94
</TABLE>
<PAGE> 34
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
West Germany FIBERFRAX 688493 08/25/04
</TABLE>
<PAGE> 35
TRADEMARK APPLICATIONS AND REGISTRATIONS
----------------------------------------
CERAMIC FIBERS -- NIAGARA FALLS
-------------------------------
<TABLE>
COUNTRY MARK APPL./REG. NO. NEXT RENEWAL
<S> <C> <C> <C>
INTERNATIONAL REGISTRATION* INSULFRAX 627567 11/28/14
<FN>
* Designated countries are Allemagne, Autriche, Espagne, Italie, Liechtenstein,
Monaco, Portugal, Saint-Marin, Suisse
</TABLE>
<PAGE> 1
Exhibit 10.9
LICENSE AGREEMENT
This Agreement is made as of February 29, 1996, by and between Unifrax
Corporation (formerly named The Carborundum Company), a Delaware corporation
having offices at 2351 Whirlpool Street, Niagara Falls, New York 14305
(hereinafter known as the "Licensor"), and Societe Europeenne des Produits
Refractaires, a French company having offices at "Les Miroirs", 18 Avenue
d'Alsace, 92400 Courbevoie (hereinafter known as "Licensee", collectively
"parties").
WHEREAS The British Petroleum Company p.l.c. ("BP") is the indirect
owner of The Carborundum Group and the Licensor, which includes the North
American Ceramic Fibers Division ("NAF") and the patents, and other intellectual
property relating to the world-wide ceramic fibers business presently conducted
by The Carborundum Group and NAF;
WHEREAS Licensee is in the process of acquiring The Carborundum Group
from indirect wholly-owned subsidiaries of BP and has entered into a stock
purchase agreement (the "Stock Purchase Agreement") to that effect, under the
condition, inter alia, that the parties hereto enter into this Agreement; and
WHEREAS, as part of the Stock Purchase Agreement, Licensor shall
license Licensee certain ceramic fibers technology and patents in certain areas
of the world.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable considerations, it is mutually agreed as
follows:
ARTICLE 1 - DEFINITIONS
1.01 In this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
a) "Effective Date" means the date this Agreement is executed by
all the parties hereto.
<PAGE> 2
b) "Territory" means the world, excluding the United States (and its
territories), Canada and Mexico.
c) "Licensed Products" means the goods produced from ceramic fibrous
material that (i) are being or have been manufactured by The
Carborundum Group in the Territory as of the Effective Date,
which products are listed in Appendix A, such list being
illustrative and not limitative, and (ii) are goods that are or
have been, as of the Effective Date, manufactured, sold or
developed suitable for commercial exploitation by Licensor that
would replace any goods licensed under (i) above, such as
Anchor-Loc 2. Licensed Products specifically excludes products
that are distributed according to the Distribution Agreement and
XPE.
d) "Licensor's Patents" means those patents and patent applications
in existence as of the Effective Date and any future patents or
patent applications claiming priority from such patent or patent
applications, which are owned or controlled by the Licensor in
the sense of having the right to grant licenses thereunder
without accounting to others, which patents would be infringed by
the manufacture, use or sale of the Licensed Products.
e) "Confidential Know How" means that technical information and
trade secrets of a party, such as data, formulae, sketches,
operating data, drawings, reports, techniques and other
information that is not, as of the Effective Date, generally
known or easily accessible to third parties, provides a
commercial advantage in its use in relation to the Licensed
Products, and is necessary for the manufacture, use or sale of
the Licensed Products, which such party has the right to disclose
without accounting therefor to others.
f) "Licensed Technology" means the Licensor's Patents, the
Confidential Know How, and all non-confidential technical
information necessary for the manufacture, use or sale of the
Licensed Products.
<PAGE> 3
g) "Improvements" means modifications, changes or additions made to
the Licensed Technology that are commercially utilized by the
Licensor, or its Affiliates and are developed after the Effective
Date. Modifications, changes or additions, to be considered an
Improvement, are those modifications, changes or additions that
are directly related to the Licensed Products, and do not result
in significantly changing the basic characteristics or operation
of the Licensed Product or, with respect to the method of making
the Licensed Product, do not significantly alter the basic
processing steps utilized to manufacture the Licensed Product, as
such steps exist as of the Effective Date.
h) "Affiliate" means any company of which a party hereto now or
hereafter owns or controls, directly or indirectly, at least 50%
of the stock having the right to vote for directors thereof. For
the purpose of this definition, the stock owned or controlled by
a particular company shall be deemed to include all stock owned
or controlled directly or indirectly by any other company of
which that particular company owns or controls, directly or
indirectly, at least 50% numerically of the stock having the
right to vote for directors thereof. When used in connection with
Licensor, the term "Affiliate" shall also include any company
while it directly or indirectly controls the Licensor, including
The British Petroleum Company p.l.c., a corporation of England,
and all affiliates of that company. When used in connection with
Licensee, Affiliate shall also include any company while it
directly or indirectly controls the Licensee, including Compagnie
de Saint-Gobain, and all affiliates of that company.
i) "Agreement" means this License Agreement.
j) "Product Distribution Agreement" means the agreement of even date
herewith for distributing certain products, entered into by the
parties hereto.
k) "XPE" means expanding mat containing ceramic fiber and at least
twenty-five percent (25%) by weight vermiculite, that is used for
catalytic converters.
<PAGE> 4
l) "The Carborundum Group" means "NewCo", as defined in the Stock
Purchase Agreement, and Carborundum Ventures Inc. ("CVI"),
Carborundum Resistant Materials Ltd., Carborundum Realty Pty.
Ltd., The Carborundum Company Limited, Carborundum Belgium, S.A.,
Carborundum Holdings Ltda., Carborundum do Brasil Ltda.,
Carborundum Caribbean, Inc., Carborundum Textil Ltda.,
Carborundum Deutschland GmbH., and Carborundum Technical Ceramics
GmbH., and their subsidiaries, excluding in each case all assets,
employees, activities, liabilities or obligations relating to
NAF, and excluding the assets and liabilities of (but not CVI's
equity investment in) Toshiba-Monofrax Co., Ltd.
m) "Licensor" means Unifrax Corporation, an indirect wholly owned
subsidiary of The British Petroleum Company p.l.c., which owns,
as of the date hereof, NAF, including the legal or equitable
ownership of patents and other intellectual property relating to
the ceramic fibers business of The Carborundum Group.
n) "NAF" means the ceramic fibers business of the Licensor, located
in the United States (and its territories), Canada and Mexico.
o) "Non-Compete Agreement" means the non-compete agreement entered
into among SEPR, BP and Licensor and effective the date hereof.
ARTICLE 2 - GRANT AND ASSIGNMENT
2.01 Licensor grants, as of the Effective Date, and subject to the
outstanding exclusive grants in Japan and South Africa, a royalty-free
license under the Licensor's Licensed Technology to make, use and sell the
Licensed Products in the Territory, and to sell Licensee's products using
Licensed Technology, subject to the terms and conditions of this Agreement.
2.02 The License granted in this Article 2 shall include the right to
grant sublicenses of the Licensed Technology within the Territory,
providing that, for a period of [ * ] from the Effective Date, the party
receiving such sublicense [ * ], said sublicense to be effective only for
so long as [ * ]
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
<PAGE> 5
[ * ]. No other sublicense rights are granted herein. This Article does
not preclude partial assignment as allowed under Article 13.
2.03 Licensor agrees, for a period of 20 years from the Effective
Date, or until termination of this License Agreement, not to grant any
further licenses under the Licensed Technology to make, use and sell the
Licensed Products in the Territory, except to Affiliates of Licensor, said
sublicense to be effective only for so long as they remain an Affiliate of
Licensor. Subject to the Non-Compete Agreement, Licensor is free to make,
use or sell Licensed Products or use Licensed Technology in the Licensed
Territory.
2.04 To the extent that it is legally entitled to do so, and subject
to the acceptance, if required, of existing licensees, Licensor agrees to
assign to Licensee, effective as of the Effective Date, the Technical
Assistance agreement dated April 1, 1970, and amendments and extensions
thereof, between Licensor and Toshiba-Monofrax Company, Ltd and the
Technical Service and license agreement dated January 1, 1981, and
amendments and extensions thereof, between Licensor and
Carborundum-Universal S.A. (Pty) Ltd., both of which agreements pertain to
ceramic fiber. Licensor herein grants to Licensee such license necessary to
enable Licensee to fulfill its obligations under said assigned agreements.
This license shall be valid only for the current term of each such
agreement, without renewal or extension, and only applicable to said
agreements. Thereafter, Toshiba-Monofrax and Carborundum-Universal S.A.
shall, for purposes of grants under Article 2.02 of this Agreement, be
considered Affiliates of Licensee. Licensee shall be responsible for
providing technical and engineering service to Toshiba-Monofrax and
Carborundum-Universal S.A. in accordance with the above-mentioned
agreements.
ARTICLE 3 - IMPROVEMENTS
3.01 For a period of five years after the Effective Date, Licensor
grants to Licensee a, royalty-free license for the Territory to all
Improvements made by Licensor.
3.02 Licensor agrees for a period of 20 years from the Effective Date,
or until termination of this License Agreement, not to grant any further
licenses under the
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
<PAGE> 6
Improvements to make, use or sell the Licensed Products in the Territory,
except to Affiliates of the Licensor.
3.03 The term of the licenses granted under this Article 3 shall be
for the longer of the period of any Patent relative to such Improvement or,
with respect to Improvements of Confidential Know-How, the period during
which said Confidential Know-How remains out of the public domain.
3.04 Information relative to Licensor's Improvements received by the
Licensee shall be kept confidential as required by Article 6 of this
Agreement.
ARTICLE 4 - TECHNICAL AND ENGINEERING SERVICE
4.01 For the implementation of the Licensed Technology and
Improvements, it is understood that Licensee will require certain technical
services from Licensor, such as the receipt of certain technical
information and data, the benefit of the services of certain technical
personnel, and general technical assistance. Licensor shall provide such
technical services and the services of technical personnel as are mutually
agreed by the parties to be necessary for as long as Licensee has paid the
yearly service fee in Article 4.02. Both parties recognize that the
services of such personnel shall consist principally of consultation and
technical advice by phone or at Licensor's site in connection with the
manufacture of the Licensed Products, or the sending of available written
technical information upon Licensee's request. If such services are
required at Licensee's site, such services shall be limited to no more than
two man-weeks total in any one calendar year. Licensee shall reimburse
Licensor per Article 4.05 for such site visit.
4.02 For a period of five years from the Effective Date, Licensee
agrees to pay Licensor a yearly service fee of [ * ]. Such fee shall
remunerate Licensor for the technical assistance as provided by Article
4.01; such fee shall be due thirty (30) days after the Effective Date and
each year thereafter on the anniversary of the Effective Date, through the
five-year period.
4.03 Payment to Licensor shall be as set forth in Article 10.
4.04 For a period of five years after the Effective Date, Licensor
agrees to provide engineering service to Licensee or its Affiliates for
specific projects such as plant designs or engineering services outside of
the scope of routine technical
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
<PAGE> 7
assistance. Such engineering service shall be at the reasonable convenience
of Licensor. The manpower cost shall be a per diem rate of U.S. $890 per
man-day.
4.05 If the services provided by Licensor requires Licensor's
personnel to travel to Licensee's or Affiliate's locations, then the party
receiving such services shall pay Licensor's reasonable out-of-pocket
travel costs. Such reasonable costs shall be business class air travel and
reasonable business hotel accommodations.
4.06 For a period of five years after the Effective Date, Licensee and
its Affiliates shall have the right to visit Licensor's manufacturing
facilities producing Licensed Products, provided that such visit(s) shall
be limited to no more than two employees of the Licensee or its Affiliates,
for a maximum of two weeks in any calendar year. The parties shall agree on
the length and the timing of such visit(s).
4.07 Licensor agrees that the Licensed Technology disclosed to
Licensee either through technical assistance in Article 4.01 or engineering
service in Article 4.04 shall be that Licensed Technology that is currently
used by Licensor as of the date of disclosure.
4.08 Licensor shall use its reasonable efforts to solve Licensee's
problems and to answer, reasonably promptly, questions raised by the
Licensee.
4.09 For a period of five years after the Effective Date, Licensor
shall hold a yearly technical meeting at its facilities at which it will
disclose all Improvements of Licensor made during that year. Licensee shall
pay the cost of all its employees attending such meeting. Licensee shall
send no more than four employees to such meeting.
ARTICLE 5 - PATENT MAINTENANCE
5.01 Licensor's Patents are identified in Appendix B.
5.02 For a period of five years after the Effective Date, Licensor
shall be responsible for and pay all patent registration/maintenance fees
for the Licensor's Patents in the Territory. Licensor shall be responsible
for the prosecution of all Licensor's Patents in the Territory and shall
have the sole decision to modify the claims thereof and take whatever
action Licensor deems necessary with respect to
<PAGE> 8
prosecution of such applications. Licensor shall, however, take no actions
that would adversely affect any proceedings under Article 7.05
5.03 If, five years after the Effective Date and thereafter, Licensor
decides not to pay any required registration/maintenance fees for a
Licensed Patent in the Territory, then Licensee shall be given the
opportunity to pay such fees. In such a case, the ownership of such Patent
will be transferred to Licensee and Licensor shall sign all necessary
documents proposed by Licensee to that effect. Licensee agrees to grant to
Licensor, a royalty free, non-exclusive, non terminable worldwide license
to the Patent, with the right to sublicense in accord with Article 2.03.
ARTICLE 6 - CONFIDENTIALITY
6.01 The Licensee agrees:
a) To keep confidential and not disclose to any third party,
all Confidential Know How and information relating to
Improvements received under this License Agreement from the
Licensor, whether received before or after the Effective
Date, except:
1) such of said information as now is or hereafter becomes
published or otherwise generally available to the
public through no act or failure to act of the
Licensee, or
2) such of said information the Licensee can show by
written record was in its possession prior to receipt
hereunder,
3) such of said information which is disclosed to the
Licensee by a third party who did not obtain such
information directly or indirectly from a party under
an obligation of secrecy,
4) such of said information that Licensee can show, by
clear and convincing written evidence, was
independently developed by Licensee without access to
the Confidential Know How.
b) Even after such information becomes generally available to
the public, not to disclose the fact that such information
was furnished to the Licensee by the Licensor unless written
approval is obtained from the Licensor.
c) Not to put to any use, except as expressly licensed herein,
any information Licensee is obligated to keep in confidence
under this Article 6.
6.02 Except for breach of this Agreement under Article 9.03, this
obligation of confidentiality for Licensee and Licensor in Article 6 shall
extend for the term of this
<PAGE> 9
Agreement. In the event of such breach, the obligation of confidentiality
shall extend for a period of 20 years from the Effective Date and shall
survive the expiration or termination of this Agreement.
6.03 Any Affiliate of a Party that is sublicensed under this Agreement
shall be required to agree in writing to be bound by confidentiality
provisions at least as strict as contained in this Agreement.
6.04 The Licensor agrees:
a) To keep confidential and not disclose to any third party,
all confidential information received under this License
Agreement from the Licensee, whether received before or
after the Effective Date, except:
1) such of said information as now is or hereafter becomes
published or otherwise generally available to the
public through no act or failure to act of the
Licensor, or
2) such of said information the Licensor can show by
written record was in its possession prior to receipt
hereunder,
3) such of said information which is disclosed to the
Licensor by a third party who did not obtain such
information directly or indirectly from Licensee under
an obligation of secrecy,
4) such of said information that Licensor can show, by
clear and convincing written evidence, was
independently developed by Licensor without access to
the confidential information.
b) Even after such information becomes generally available to
the public, not to disclose the fact that such information
was furnished to the Licensor by the Licensee unless written
approval is obtained from the Licensee.
c) Not to put to any use, except as expressly licensed herein,
any information Licensor is obligated to keep in confidence
under this Article 6.
ARTICLE 7 - REPRESENTATIONS, WARRANTIES AND PATENT INFRINGEMENT
7.01 Nothing in this Agreement shall be construed as a warranty or
representation by Licensor as to the validity or scope of any Licensed
Patent or trade secret, or the confidentiality of any Confidential Know
How.
<PAGE> 10
7.02 To Licensor's knowledge, the current use of the Licensed
Technology, in the Territory, does not infringe any valid patent. No claim
by any third party contesting the validity, enforceability, use or
ownership of the Licensed Technology has been made, is currently
outstanding or, to Licensors' knowledge, is threatened.
7.03 OTHER THAN IN THIS ARTICLE 7, LICENSOR MAKES NO REPRESENTATION OR
WARRANTIES OF ANY KIND WHETHER EXPRESSED OR IMPLIED, BY STATUTORY LAW OR
OTHERWISE WITH RESPECT TO ITS DEVELOPMENT, MANUFACTURE, USE, SALE OR
DISPOSITION OF THE LICENSED TECHNOLOGY PROVIDED BY LICENSOR UNDER THIS
AGREEMENT, AND ANY SUCH WARRANTIES ARE HEREBY DISCLAIMED, INCLUDING ANY
WARRANTABILITY OF VALUE, USE, MERCHANTABILITY OR FITNESS FOR PARTICULAR
PURPOSE.
7.04 If during the term of this Agreement, Licensee shall discern that
one or more third parties are infringing the Licensor's Patents in the
Territory, then Licensee shall promptly report such activity to Licensor,
providing in such report all details concerning the kind and character of
the infringement, and other pertinent information that Licensee may have.
7.05 Upon receipt of such notice, the parties shall meet and confer to
review the matter as soon as reasonably possible. Upon completion of such
review, the parties shall mutually determine that there exists or there
does not exist reasonable likelihood of infringement. If the parties
mutually determine that reasonable likelihood of infringement does exist,
and the parties mutually agree on a course of action to be taken, then all
third party costs associated therewith shall be shared equally, it being
understood that each party shall absorb its own costs. If the parties
cannot mutually decide on the likelihood of infringement or the course of
action, the following options shall be available:
1) The Licensor may take complete charge of the matter in which
event Licensor shall be responsible for all costs associated
therewith. Any recoveries which may be gained in action
commenced by Licensor shall be entirely the property of
Licensor.
2) In the event the Licensor decides not to commence and pursue
an action to enjoin such infringement, Licensee shall be
entitled, at its expense, to
<PAGE> 11
commence the action in its name and shall be entitled to
name Licensor as a party plaintiff in the event that the
rules then pertaining shall require the naming of the owner
of the Licensed Patents for purpose of such infringement
action. Any recoveries which shall be gained in any such
action commenced by Licensee shall be the property of
Licensee. Licensee shall not be free to settle the same
without the consent of Licensor to the extent such
settlement lessens the rights of Licensor.
ARTICLE 8 - INDEMNIFICATION
8.01 Licensee agrees to indemnify, defend and hold harmless Licensor
and its officers, employees and agents from any and all losses arising as a
result of or relating to:
a) Licensee's performance of the Agreement;
b) Licensee's provision of services, marketing,
developing, manufacturing, or any related activities of
any nature whatsoever arising out of Licensee's or its
Affiliates manufacture, use or sale of the Licensed
Products or Licensed Technology; or
c) any third party and/or Affiliates use of the Licensed
Products or Licensed Technology supplied by Licensee;
except, in each case, to the extent indemnification or defense of Licensor
for such losses is prohibited by applicable law or is otherwise covered by
Article 8.02. Licensee shall in any event be obligated to defend Licensor
against any proceeding or causes of action arising out of the foregoing
activities, and to the extent Licensor has incurred any reasonable attorney
fees or defense cost, Licensee will promptly reimburse Licensor for such
fees and costs provided, however, in the event that it is determined in a
final and nonappealable judgment by a court of competent jurisdiction that
such obligation of defense was prohibited by applicable law, Licensor shall
reimburse Licensee for such defense costs.
8.02 Licensor will indemnify Licensee to the extent arising from or
attributable to any breach or failure by Licensor or its Affiliates to
perform any provision, representation, warranty, covenant or agreement in
this Agreement.
8.03 IN THE EVENT OF BREACH OF THIS LICENSE, NEITHER LICENSEE NOR
LICENSOR SHALL BE LIABLE FOR ANY INCIDENTAL,
<PAGE> 12
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES INCLUDING LOSS OF USE, REVENUE
OR PROFIT, REGARDLESS OF THE FORESEEABLITY OF OR NOTICE TO LICENSOR OF THE
POSSIBILITY OF SUCH DAMAGES.
ARTICLE 9 - TERM
9.01 The term of the license granted in Article 2.0 shall be for a)
Licensed Patents, the duration of the patent in the relevant Territory, and
for b) Confidential Know How and non-patented Improvements, for as long as
the Confidential Know How does not reach the public domain.
9.02 Unless terminated under Article 9.03, the term of the Agreement
shall be the longest of the term for the grant of licenses under this
Agreement. The party believing the Agreement has terminated due to the
termination of the grants hereunder, shall provide evidence to the other
party supporting such belief prior to any such termination coming into
effect.
9.03 Should Licensee or its Affiliates breach the third party
sub-license restriction contained in the license grants, as determined by
arbitration under Article 15, Licensor shall give written notification to
Licensee. If in less than thirty (30) days of such notification Licensee
has not remedied the defect according to the arbitration award, Licensor
may give further written notice immediately terminating the Agreement. Upon
termination under this Article 9.03 Licensee shall have no further rights
in the Licensed Technology except that [ * ]. Such termination and
continuing license shall be without prejudice to all other rights and
remedies available to Licensor.
ARTICLE 10 - PAYMENT
10.01 Payment shall be by wire transfer, in United States Dollars, to
Licensor's account as notified in writing to Licensee from time to time.
10.02 Licensee shall pay any sales, use or similar taxes applicable, if
any, to any payment to Licensor. If relevant, Licensee shall provide proof
of such tax payment to
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
<PAGE> 13
Licensor sufficient for Licensor to take any tax credits allowed by its
governmental authority. Upon such tax credit being credited to Licensor,
Licensor will refund the amount of such allowed credit to Licensee.
10.03 Payments received by Licensor thirty (30) days after a first
written request stating that such payment was due to Licensor shall accrue
interest pro-rated from the due date to the time of payment, at an annual
rate of one and one-half (1 1/2) percent above the rate quoted from time to
time as its prime rate as announced in New York City, New York by Chase
Manhattan Bank.
ARTICLE 11 - EXPORT OF TECHNOLOGY
11.01 Licensee hereby acknowledges and accepts that the Licensed
Technology includes U.S. technical information and therefore it is subject
to the Export Administration Regulations (15 CFR, Part 730-799) of the
United States Department of Commerce and the Arms Export Control Act (22
USC 2778) as implemented by the International Traffic in Arms Regulations
(22 CFR Part 120 et al) and other U.S. government regulations relating to
export or re-export of U.S. technical data and equipment and products
produced therefrom. Licensee expressly agrees to comply fully with all such
U.S. government regulations to the extent they apply to any Licensed
Technology or technical information made available to Licensee under this
Agreement.
11.02 Licensor shall be responsible for any license required under
Article 11.01 necessary to transfer the Licensed Technology from the
Licensor to the Licensee.
ARTICLE 12 - NOTICE
12.01 All notices, requests, demands and other communications required
or permitted to be given under this Agreement shall be deemed to have been
duly given if in writing and delivered personally, or five (5) business
days after being mailed first class, postage prepaid, registered or
certified mail, or if telecopied and confirmed by one of the preceding
methods, as follows:
<PAGE> 14
If to Licensee:
Societe Europeenne des Produits Refractaires
Les Miroirs
18 Avenue d'Alsace
92400 Courbevoie
Attention: Legal Affairs Department
Fax: 33-1-47-62-36-83
If to Licensor:
Unifrax Corporation
2351 Whirlpool Street
Niagara Falls, New York 14305
Attention: Vice President, Sales & Marketing
Fax: 716-278-2963
Any party may change the address to which such communications are to be
directed to it by giving written notice to the other in the manner
specified in this ARTICLE 12.01.
ARTICLE 13 - ASSIGNMENT
13.01 Licensee shall not have the right to assign the Agreement unless
Licensor approves of such assignment in writing, except Licensee may assign
the Agreement to a wholly owned Affiliate of Licensee. Licensee may also
assign this Agreement to a third party that has acquired substantially all
of Licensee's assets acquired under the Stock Purchase Agreement and
related to the ceramics fibers business. Licensee may assign this Agreement
to a more than 50% owned Affiliate with Licensor's written approval, which
approval will not be unreasonably withheld.
13.02 Licensee may partially assign this Agreement on a country by
country basis to a third party that has acquired in each of the United
Kingdom, Germany, Australia or Brazil, substantially all of Licensee's
assets that are acquired under the Stock Purchase Agreement and relate to
the ceramics fibers business. This partial assignment is subject to
Licensee giving Licensor the right to match any bonafide bid received by
Licensee for Australia, Brazil, or Europe (Europe as a whole, including
Licensee's existing ceramic fibers businesses).
<PAGE> 15
13.03 Licensor shall not assign this Agreement to a third party without
the written permission of Licensee, which permission will not be
unreasonably withheld, except to a third party that acquires substantially
all the assets of NAF, in which case Licensor shall be obligated to assign
this Agreement to that third party.
13.04 Any purported assignment by Licensee in violations of the
provisions of this Article 13 shall be void.
ARTICLE 14 - FORCE MAJEURE
14.01 The parties hereto shall not be held liable or responsible for
delay or failure to take any actions called for under this Agreement
occasioned by acts of God, force majeure or any cause beyond the control of
the parties, including but not limited to war; civil disturbances; fire;
flood; earthquake; windstorm; unusually severe weather; acts or defaults of
common carriers; accidents; strike or other labor trouble; lack of or
inability to obtain raw materials, transportation, labor, fuel or supplies;
governmental laws, acts, regulations, embargoes, or orders (whether or not
such later prove to be invalid); any of which shall release the parties
form the performance of this Agreement.
ARTICLE 15 - ARBITRATION
15.01 In the event of any dispute, claim, question, or disagreement
arising out of or relating to this Agreement or the breach thereof, the
parties hereto shall use their best efforts to settle such disputes,
claims, questions, or disagreements. To this effect, they shall consult and
negotiate with each other in good faith and, recognizing their mutual
interests, attempt to reach a just and equitable solution satisfactory to
both parties. If they do not reach such solution within a period of thirty
(30) days, either party may submit the dispute to binding arbitration
administered by the American Arbitration Association under its
International Arbitration Rules. The place of arbitration shall be New York
City, New York, and the language of arbitration shall be English. The
number of arbitrators shall be three, unless the parties agree otherwise.
Both parties agree that time is of the essence in any arbitration. Each
party shall submit their choice of an arbitrator to the Association within
five (5) business days after receiving notice from the Association of an
arbitration proceeding. The arbitrators so selected shall have five(5)
business days to select a third arbitrator. If the arbitrators selected by
the parties cannot agree on a third arbitrator within this time period,
then a third arbitrator shall be selected by the Association to complete
the
<PAGE> 16
panel. The parties agree that the arbitrators may grant a party's request
for a preliminary injunction to minimize damages. As an aid to arbitration,
either party may also seek assistance from judicial authorities to provide
interim relief, such as an injunction, if necessary.
ARTICLE 16 - APPLICABLE LAW
16.01 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio without regard to rules on
choice of law and Licensee hereby consents to submit to the jurisdiction of
the American Arbitration Association located in New York, New York, and to
the jurisdiction of applicable courts in the United States or elsewhere, to
enforce any award of said American Arbitration Association, or to grant
interim relief.
ARTICLE 17 - MISCELLANEOUS
17.01 This Agreement may be amended, modified, superseded or canceled,
and any of the terms, covenants, representations, warranties or conditions
hereof may be waived, only by a written instrument executed by the parties
hereto, or, in the case of a waiver, by or on behalf of the party waiving
compliance. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at
a later time to enforce the same. No waiver by any party of any condition,
or of any breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition
or breach or waiver of any other condition or of any breach of any other
term, covenant, representation or warranty.
17.02 This Agreement shall comply with and its obligations performed in
accordance with the laws, whether national or supranational of all
jurisdictions in which the Agreement is to be performed (including the
United States). If any provision of this Agreement constitutes a breach of
any applicable law or is considered to be or will be void or unenforceable,
such provision shall be deemed to be deleted and the remaining provisions
shall continue in full force and effect.
17.03 The article or section headings contained in this Agreement are
for convenient reference only, and shall not in any way affect the meaning
or interpretation of this Agreement. This Agreement may be executed
simultaneously in
<PAGE> 17
two or more counterparts, each of which shall be deemed an original, but
all of which shall constitute but one.
17.04 For avoidance of doubt, nothing in this Agreement shall be
construed or interpreted as limiting any rights of Kerlane (a subsidiary of
Licensee involved in the manufacturing and selling of ceramic fibers) to
practice or develop its ceramic fibers technology, to manufacture use and
sell its ceramic fibers products worldwide, to grant or receive licenses
either to Affiliates or to third parties, to dispose of its assets or of
its intellectual property rights unless and to the extent that:
a) Kerlane has received any Confidential Know How as defined in this
Agreement, or
b) Kerlane is a sub licensee of the Licensed Technology, in which case
Kerlane will be bound by the obligations with respect to a Licensee
contained in this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by the respective duly authorized officers.
Societe Europeenne des Unifrax Corporation
Produits Refractaires
LICENSEE LICENSOR
By:_______________________ By:____________________
Name:____________________ Name: Christopher C. Clarke
Title:_____________________ Title: Attorney-In-Fact
<PAGE> 18
APPENDIX A
LICENSED PRODUCTS
Ceramic Fiber Blanket and Mats and Products
-------------------------------------------
o Durablanket(R)AC o Insulfrax(R)family
o Durablanket(R)2600 (1400 AZS) o Durablanket(R)family
o Durablanket(R)SE o Duraback(TM)family, including Isofelt
o Durablanket(R)HP-S o Fibermat(TM)
o Durablanket(R)HS o water repellent blanket
o Durablanket(R)HA o Durablanket(R)E (encapsulated)
o Durablanket(R)FD 1560 128
o Painel(TM), ceramic fiber blanket panels
o Anel(TM), ceramic fiber blanket rings
Fibers
------
o Insulfrax(R) family
o Fiberfrax(R)HP (7000; -L, -M, -RR, -HS-350, -HS-400), blown/spun fibers
o Fiberfrax(R)7001; -F-5, -M-5, -C-5, -F-5, chopped fibers
o Fiberfrax(R)AZS (8000, spun 1400), blown/spun fibers
o Fiberfrax(R)AZS (8001; -M-5), blown/spun fibers
o Fiberfrax(R)spun fiber
o Fiberfrax(R)W657, W707, W758, washed fiber
o Fiberfrax(R)HA
o Fiberfrax(R)milled fibers
o lubricated fibers
o Fiberfrax(R)bulk fibers (Flocos(TM), FT bulk)
Specialities
------------
Fiberfrax(R) QF(TM)-180, QF180 Blue and QF-150, ceramic cements
Fiberfrax(R) Top Coat(TM) M, Coat MCR(TM), ceramic cements
Rigidizer(TM) and Rigidizer(TM) W, inorganic liquid hardener compound
Fiberfrax(R) LDS(TM) and LDS-AL, moldable compounds
Fiberfrax(R) Pumpable(TM)-LDS and Pumpable-GS,
Pumpable(TM) X, insulating & sealing compounds
Fiberfrax(R) Moist-Pack(TM) D, moldable/formable blanket
Fiberfrax(R) FC-25(TM), insulating castable mix
<PAGE> 19
Specialities (con't)
--------------------
Variform(TM) A, B, UC, 7998, insulation
Fiberfrax(R) Duraboard(TM), RG, LD, HD, FX, 2600, 3000,
Fiberboard, ceramic fiberboard
Duraset(R), LE, ceramic fiber felt/mat
Lo-Con(TM) felt, ceramic fiber blanket/mat
Fiberfrax(R) 970/975, 770, ceramic fiber paper
FT(TM) papers
Papel(TM) fiber
Fiberfelt(TM) papers
111/1198 grade papers
Anchor-Loc(R) ceramic fiber modules
Power-Loc(R) insulating block modules
Screw-Loc(R) insulating block modules
Thread-Loc(R) insulating block modules
Weld-Loc(R) insulating block modules
Fiberwall(TM) 22, 24, 2600 bonded modules
Insulfrax(R) bonded 1800 modules
vacuum formed tubes
Moldafrax(TM) vacuum formed shapes
GC-50, GC-90, Launder, castables
Insulfrax(R) board
Insulfrax(R) paper
Fiberfix(TM), cement adhesive
Fraxfil(TM), pumpable compounds
Fiber Mastic, LDS moldable compounds
Frax Bond(TM), adhesives
Fyre Putty
Calha
Boiler Seal
Fiberfrax(R) IG Tape
Fiberfrax(R) T30 and T30R Tubes
<PAGE> 1
Exhibit 10.11
CONVERSION AGREEMENT
--------------------
THIS AGREEMENT is made effective as of the 29th day of February, 1996
("Effective Date") by and between Unifrax Corporation formerly named The
Carborundum Company, (hereafter known as the "Company") a Delaware corporation
having offices at 2351 Whirlpool Street, Niagara Falls, New York 14305 and
Societe Europeenne des Produits Refractaires, a French corporation having
offices at "Les Miroirs", 18 Avenue d'Alsace, 92400 Courbevoie (hereinafter
known as "SEPR") with reference to the following facts:
Whereas, Company desires to have SEPR die cut XPE in order to produce
Finished Products; and
Whereas, affiliates of SEPR owns facilities at Dusseldorf, Germany and
in Brazil where XPE is die cut, and SEPR, through such affiliates, is willing to
die cut XPE supplied by Company in accordance with the terms and conditions of
this Agreement.
SEPR AND COMPANY AGREE AS FOLLOWS:
ARTICLE 1 - DEFINITIONS
-----------------------
Whenever used in this Agreement the following terms shall have the
meaning ascribed to them hereunder.
1.01 "Agreement" shall mean this Conversion Agreement.
1.02 "Company" shall mean Unifrax Corporation, a Delaware
corporation being as of the date hereof an indirect wholly
owned subsidiary of The British Petroleum Company p.l.c.
("BP"), which owns, as of the date hereof, NAF, including
patents, trademarks and other intellectual property relating
to the XPE Products.
1.03 "Conversion Fee" shall mean the fee computed in accordance
with APPENDIX A attached hereto.
1.04 "Defaulting Party" shall have the meaning specified in SECTION
9.01.
1.05 "Effective Date" shall mean the date this Agreement is
executed by all the parties hereto.
1
<PAGE> 2
1.06 "NAF" shall mean the ceramic fibers business of the Company,
located in the United States (and its territories), Canada and
Mexico.
1.07 "Nondefaulting Party" shall have the meaning specified in
SECTION 9.01.
1.08 "XPE" shall mean expanding mat containing ceramic fiber and at
least twenty-five percent (25%) by weight vermiculite that is
used for catalytic converters ("XPE").
1.09 "Finished XPE Products" shall mean die cut shapes from XPE
meeting NAF's customers' specifications in terms of shape,
dimension within given tolerances, statistical control
parameters and specified or assumed product performance
factors that can be influenced by storage and fabrication such
as Kpa compression, tensile, etc.
1.10 "SEPR's Plant" shall mean the facilities of SEPR's affiliates
located in Dusseldorf, Germany and Brazil.
1.11 "XPE License Agreement" shall mean the license relating to XPE
entered into between the Company and SEPR the date hereof.
ARTICLE 2 - QUANTITY AND SHIPMENT OF FINISHED PRODUCT
-----------------------------------------------------
2.01 During the term of this Agreement, SEPR shall be the Company's
exclusive sub-contractor for production of Finished XPE
Products from jumbo rolls of XPE, for Finished XPE Products
sold by the Company outside of the United States (and its
territories), Canada and Mexico except for (a) prototypes and
(b) if mutually agreed on a case by case basis, small
production runs. In the event that there is a requirement for
Finished XPE Product in any country outside of Europe and
South America, then the following arrangements shall apply.
SEPR will be informed of the requirement including first
delivery dates for commercial quantities of Finished XPE
Products and asked to build the appropriate facility, having
regard to capacity, quality, cost, customer delivery
dates(such customer delivery dates being reasonable with
regard to generally acceptable time period required to install
such additional capacity) and other relevant specifications
necessary to meet projected Finished XPE Product requirements
on a cost competitive basis. SEPR will have one month's
notice, from the time of being first informed, in which to
decide to establish a new facility and become a sub-contractor
to the Company on terms and conditions consistent with the
general terms and conditions of this Agreement. If SEPR does
so decide, then SEPR will build and commission the facility in
time to meet customer requirements for first delivery of
commercial quantities of Finished XPE Products of acceptable
quality. Subject to provisions of ARTICLE 10.01, should SEPR
fail to meet this
2
<PAGE> 3
delivery deadline as a result of SEPR's fault (the fault of a
third party being reasonably evidenced by SEPR), then with
respect to the country concerned and any other country as
regards a future new or additional facility to meet new or
additional Finished XPE Product production from jumbo rolls of
XPE, this Agreement will become void and the Company will be
able to make its own arrangements for such new or additional
conversion. Should SEPR decide not to establish a facility,
then the Company shall be entitled to seek and establish an
alternative source of Finished XPE Products conversion and
will not be bound by this Agreement in the country concerned.
2.02 SEPR shall produce the Finished XPE Products requested by the
Company from the jumbo rolls of XPE supplied by the Company
pursuant to ARTICLE 3 using the equipment and Quality
Assurance tools currently in use. Changes in equipment or
Quality Assurance Tools must be approved in advance by the
Company, such approval not to be unreasonably withheld. The
Company agrees to pay the Conversion Fee for, and take
delivery from SEPR of, Finished XPE Products as reasonably
requested by the Company.
2.03 To assist SEPR in planning production of Finished XPE Products
for Company, Company shall provide SEPR an annual forecast and
in advance of each calendar month a rolling three month
forecast of its anticipated delivery schedule for XPE jumbo
rolls, and its requirements for Finished XPE Product.
2.04 Unless otherwise mutually agreed, all shipments of the
Finished XPE Products by SEPR shall be prepared for shipment
by surface vessel, ex works SEPR's manufacturing facility
packaged in Company's packaging ready for shipment to
Company's customer.
ARTICLE 3 - SUPPLY OF XPE JUMBO ROLLS
-------------------------------------
3.01 Company shall deliver to SEPR's plant, quantities of XPE jumbo
rolls to enable SEPR to produce Finished XPE Products called
for under ARTICLE 2 hereof. SEPR shall produce a minimum
number of parts to the given specifications from each jumbo
roll equal to the output of fully complying Finished XPE
Products for each part number per jumbo roll at the 1996
standard attached as APPENDIX B.
3.02 Company and SEPR shall agree upon a mutually acceptable
schedule for delivery of XPE jumbo rolls to SEPR's affiliates
plants' compatible with SEPR's reasonable production schedule
and Company's arrangements for delivery of XPE to Company's
customers.
3
<PAGE> 4
3.03 Company shall replace any XPE not meeting the Company's
written and customer accepted specifications for XPE. SEPR
will dispose of all scrap and nonconforming XPE on behalf of
the Company in accordance with all applicable laws and
regulations. SEPR shall bear all costs associated with the
disposal of scrap resulting from the production of Finished
XPE Products and off-spec Finished XPE Products. Company shall
be responsible for SEPR's reasonable costs for disposal of
non-conforming XPE.
3.04 Should it be necessary to expand capacity to meet increased
requirements for Finished XPE Products conversion, then
Company and SEPR shall discuss and agree to the extra
investment needed to meet the increased conversion
requirement. SEPR undertakes to make the necessary investment,
on a cost competitive basis, and any such capital expenditure
shall be recognized in the calculation of charges for fixed
costs as set out herein under APPENDIX A, by making
commensurate changes to fixed assets and depreciation.
ARTICLE 4 - PAYMENT TERMS
-------------------------
4.01 Payment Procedures. Payments of the Conversion Fee shall be
made by wire transfer in Deutsche Marks when the production
service is done by the German plant and Reals (with
appropriate indexing using normal commercial practice in
Brazil to protect against inflation when the production
services done by the Brazilian plant is for sales to customers
in Brazil. Payment terms for sales to customers outside of
Brazil will be as agreed between the parties.)when done by the
Brazilian plant, depending on which facility is providing the
production service, to an appropriate bank account designated
in writing by SEPR for such purpose. The terms shall be net
thirty (30) days from the invoice dates specified in APPENDIX
A.. Payments will be subject to any applicable adjustments or
reimbursements specified in APPENDIX A. In addition to any
rights it may have under this Agreement or under any law, rule
or regulation, SEPR shall have the right to cancel orders
placed thereunder or to refuse or delay the shipment thereof,
if Company wrongfully and repeatedly fails to make timely
payments of amounts due hereunder. Lastly, in the event that
any invoiced amount remains unpaid after sixty (60) days from
the invoice date, Company agrees to pay interest from that
date forward on such outstanding balance at an interest rate
of one and one-half (1 1/2) percent above the rate quoted from
time to time as its prime rate as announced in New York City,
New York by Chase Manhattan Bank when the currency used is not
the Real, and, when the currency used is the Real, the
equivalent rate of interest in Brazil; provided, however, that
Company's agreement to pay interest on such overdue
obligations does not imply that SEPR will extend any maturity
dates for such overdue obligations.
4
<PAGE> 5
4.02 Terms of Conversion Orders. All orders for Finished XPE
Products will be deemed to reference this Agreement and will
be governed by the terms of this Agreement. Any term or
condition set forth on any order or other document submitted
by either party which is inconsistent with any term or
condition of this Agreement shall be of no force or effect,
unless accepted in writing by an authorized officer of the
other party. Acknowledgment of an order shall not constitute
acceptance of any inconsistent term unless specifically so
stated therein. Subject to the provisions of ARTICLE 10.01,
SEPR agrees to fill all orders tendered by Company within a
reasonable period.
ARTICLE 5 -WARRANTY
-------------------
5.01 Product Warranty
----------------
(a) Company warrants that the XPE provided to SEPR shall
conform to Company's written and customer accepted
specifications (which shall be sent to SEPR from time
to time) and shall be free from defects in material
and workmanship under normal and proper use in
accordance with instructions and directions of
Company applicable thereto; provided that SEPR
notifies Company in writing of the nature of any
defect within thirty (30) days after such defect is
first recognized by or reported to SEPR.
(b) SEPR warrants that its production service to be
performed in accordance with this Agreement shall
conform to Company's written and customer accepted
specifications and shall be free from defects in
material and workmanship under normal and proper use
in accordance with instructions and directions of
Company applicable thereto; provided that, Company
notifies SEPR in writing of the nature of any defect
within thirty (30) days after such defect is first
reported to Company.
(c) Should XPE provided to SEPR hereunder fail to perform
in accordance with Company's written and customer
accepted specifications, Company shall repair or
replace, as appropriate, the defective XPE in
question provided that:
i) such defect is reported to Company in
accordance with the provisions of ARTICLE
5.01(a); and
ii) cannot be proven to be the result of the
acts or omissions of SEPR.
5
<PAGE> 6
(d) Should Finished XPE Products sold hereunder fail to
perform in accordance with the Company's written and
customer accepted specifications as a result of
SEPR's action or fault, SEPR shall repair or replace,
as appropriate, the defective Finished XPE Products
in question. SEPR shall establish a credit in favor
of Company against the purchase price otherwise
payable by Company for Finished XPE Products
purchased hereunder in an amount equal to the cost of
replacing or repairing such Finished XPE Products;
provided that:
i) such defect is reported to SEPR in
accordance with the provisions of ARTICLE
5.01(B); and
ii) is proven to be the result of the acts or
omissions of SEPR.
5.02 Exclusive Warranty and Limitation of Liability. THE EXPRESS
WARRANTIES SET FORTH IN ARTICLE 5.01 CONSTITUTE THE ONLY
WARRANTIES WITH RESPECT TO THE XPE OR THE FINISHED XPE
PRODUCTS SOLD HEREUNDER. NEITHER SEPR NOR COMPANY MAKES ANY
OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED (EITHER IN FACT OR BY OPERATION OF LAW), WITH RESPECT
TO THE XPE OR THE FINISHED XPE PRODUCTS, WHETHER AS TO
MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER
MATTER. THE STATED EXPRESS WARRANTIES ARE IN LIEU OF ALL, AND
IN NO EVENT SHALL EITHER SEPR OR THE COMPANY BE HELD LIABLE TO
THE OTHER FOR, LIABILITIES OR OBLIGATIONS FOR DAMAGES,
INCLUDING BUT NOT LIMITED TO SPECIAL, INDIRECT, OR
CONSEQUENTIAL DAMAGES OR LOSS OF USE, REVENUE, OR PROFITS, IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY BREACH
OR REPUDIATION OF THIS AGREEMENT BY SEPR OR THE COMPANY OR THE
FURNISHING, FUNCTIONING OR COMPANY'S OR ANY THIRD PARTY'S USE
OF ANY FINISHED XPE PRODUCTS PROVIDED FOR IN THIS AGREEMENT.
COMPANY'S OR SEPR'S SOLE REMEDY FOR MANUFACTURER LIABILITY OF
ANY KIND INCLUDING NEGLIGENCE, WITH RESPECT TO ANY FINISHED
XPE PRODUCTS FURNISHED UNDER THIS AGREEMENT, WHETHER THE
CLAIMED LIABILITY IS BASED ON A DEFECT, WHETHER DISCOVERABLE
OR LATENT, SHALL BE LIMITED TO THE REMEDIES PROVIDED IN
ARTICLE 5.01. ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY
ANY PERSON, INCLUDING EMPLOYEES OR REPRESENTATIVES WHICH ARE
INCONSISTENT HEREWITH SHALL BE DISREGARDED AND
6
<PAGE> 7
SHALL NOT BE BINDING UPON SEPR OR COMPANY. THE WARRANTIES SET
FORTH HEREIN MAY BE ASSERTED BY COMPANY OR SEPR AS THE CASE
MAY BE, ONLY, AND NOT COMPANY'S CUSTOMERS.
ARTICLE 6 - TITLE AND RISK OF LOSS
----------------------------------
6.01 Company shall retain at all times title to all XPE, and
Finished XPE Products, including while in SEPR's possession.
All risk of loss of or damage to XPE and Finished XPE Products
shall be with Company, except while at SEPR's premises. SEPR
shall be responsible for any risk of loss or damage to any XPE
or Finished XPE Products on SEPR's premises.
ARTICLE 7 - INDEMNIFICATION
---------------------------
7.01 SEPR shall indemnify and hold Company harmless from and
against:
i) all claims, losses, liability, damages, fines,
penalties and expenses of every kind on account of
any injury or damage to property arising directly or
indirectly out of SEPR's conversion of, receipt,
storage and handling of XPE or Finished XPE Products;
and,
ii) the disposal by SEPR on behalf of Company of any
scrap or non-conforming XPE or Finished XPE Products
in contravention of any applicable law or regulation.
However, for non-conforming XPE or Finished XPE
Products, if the parties cannot agree on what are
reasonable costs to dispose of such products (as
provided by ARTICLE 3.03), SEPR shall dispose of them
in accordance with the Company's instructions and, in
such a case, Company shall be responsible for such
disposal and Company shall reimburse SEPR for the
cost incurred to comply with Company's instructions.
This indemnity obligation of SEPR shall survive expiration or
termination of this Agreement for any reason.
ARTICLE 8 - TERM
----------------
8.01 Term and Additional Term. This Agreement shall, when executed,
become effective and will remain in effect unless terminated
by the Nondefaulting Party pursuant to ARTICLE 9.01, or on a
date decided by SEPR, subject to six (6) month's notice, but
in no event later than the last to expire of the patents
listed on SCHEDULE B of the XPE License Agreement.
7
<PAGE> 8
ARTICLE 9 - DEFAULT AND TERMINATION AND EXPIRATION
--------------------------------------------------
9.01 Termination. Either party not in default under this Agreement
(the "Nondefaulting Party") may terminate this Agreement at
any time upon ninety (90) days written notice to the other
party in default (the "Defaulting Party") upon the occurrence
of any of the following events:
(a) SEPR repeatedly and wrongfully rejects or revokes
acceptance of purchase orders for the conversion of
XPE tendered by Company into Finished XPE Products
under this Agreement.
(b) The Defaulting Party repeatedly and wrongfully:
i) fails to make payments when due; or
ii) fails to ship Finished XPE Products in the
manner and within the time limits set forth
in this Agreement and such failure is not
cured within a reasonable period after
notice of the failure is given by the
Nondefaulting Party.
(c) The Defaulting Party repeatedly and wrongfully
breaches any other term or condition of this
Agreement and such breach is not cured within a
reasonable period after notice of the breach is given
by the Nondefaulting Party.
(d) If at any time the Defaulting Party shall generally
not pay the Defaulting Party's debts as they become
due or shall admit in writing its inability to pay
its debts, or shall make a general assignment for the
benefit of creditors.
(e) If the Defaulting Party shall commence any case,
proceeding or other action seeking to have an order
for relief entered on its behalf as debtor or to
adjudicate the Defaulting Party as bankrupt or
insolvent, or seeking the reorganization,
arrangement, adjustment, liquidation, dissolution or
composition of the Defaulting Party or its debts
under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or
other similar official for the Defaulting Party or
for all or a substantial party of its assets, or any
such case, proceeding, or other actions against the
Defaulting Party shall commence after the Effective
Date of this Agreement and such case, proceeding or
other action:
8
<PAGE> 9
i) results in the entry of any order for relief
against the Defaulting Party which is not
fully stayed within seven (7) business days
after entry thereof; or
ii) shall remain undismissed for a period of
forty-five (45) days.
9.02 Effect of Termination or Expiration. Upon termination of this
Agreement:
(a) In the event SEPR is the Defaulting Party pursuant to
ARTICLE 9.01, all unfilled orders for Finished XPE
Products shall at the Company's option, be canceled.
(b) SEPR shall immediately return to Company all items of
proprietary or confidential information delivered to
SEPR hereunder.
(c) The XPE License Agreement shall become effective
except for termination under ARTICLE 9.01.
ARTICLE 10 - FORCE MAJEURE AND LAWS
-----------------------------------
10.01 Force Majeure. The parties hereto shall not be held liable or
responsible for delay or failure to take any actions called
for under this Agreement occasioned by acts of God, force
majeure or any cause beyond the control of the parties,
including but not limited to war; civil disturbances; fire;
flood; earthquake; windstorm; unusually severe weather; acts
or defaults of common carriers; accidents; strike or other
labor trouble; lack of or inability to obtain raw materials,
transportation, labor, fuel or supplies; governmental laws,
acts, regulations, embargoes, or orders (whether or not such
later prove to be invalid); any of which shall release the
parties from the performance of this Agreement.
10.02 Compliance with Laws and Regulations. This Agreement shall
comply with and its obligations shall be performed in
accordance with the laws, whether national or supranational,
of all jurisdictions in which the Agreement is to be performed
(including the United States). If any provision of this
Agreement constitutes a breach of any applicable law or is
considered to be or will be void or unenforceable, such
provision shall be deemed to be deleted and the remaining
provisions shall continue in full force and effect.
10.03 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the
State of Ohio without regard to rules on choice of law and
SEPR hereby consents to submit to the jurisdiction of the
American Arbitration Association located in New York, New
York in the event of any dispute between the parties and to
the
9
<PAGE> 10
jurisdiction of applicable courts in the United States and
elsewhere to enforce any award of said American Arbitration
Association, or to grant any interim relief as set forth in
ARTICLE 10.04.
10.04 Dispute Resolution. In the event of any dispute, claim,
question, or disagreement arising out of or relating to this
Agreement or the breach thereof, the parties hereto shall use
their best efforts to settle such disputes, claims, questions,
or disagreements. To this effect, they shall consult and
negotiate with each other in good faith and, recognizing their
mutual interests, attempt to reach a just and equitable
solution satisfactory to both parties. If they do not reach
such solution within a period of thirty (30) days, either
party may submit the dispute to binding arbitration
administered by the American Arbitration Association under its
International Arbitration Rules. The place of arbitration
shall be New York, New York and the language of arbitration
shall be English. The number of arbitrators shall be three,
unless the parties agree otherwise. Both parties agree that
time is of the essence in any arbitration. Each party shall
submit their choice of an arbitrator to the Association within
five (5) business days after receiving notice from the
Association of an arbitration proceeding. The arbitrators so
selected shall have five (5) business days to select a third
arbitrator. If the arbitrators selected by the parties cannot
agree on a third arbitrator within this time period, then a
third arbitrator shall be selected by the Association to
complete the panel. The parties agree that an arbitrator may
grant a party's request for a preliminary injunction to
minimize damage in an appropriate circumstance. As an aid to
arbitration, either party may also seek assistance from
judicial authorities to provide interim relief, such as an
injunction, if necessary.
ARTICLE 11 - GENERAL
--------------------
11.01 Notices. All notices, requests, demands and other
communications required or permitted to be given under this
Agreement shall be deemed to have been duly given if in
writing and delivered personally, or five (5) business days
after being mailed first class, postage prepaid, registered or
certified mail, or if telecopied and confirmed by one of the
preceding methods, as follows:
If to SEPR:
Societe Europeenne des Produits Refractaires
Les Miroirs
18 Avenue d'Alsace
92400 Courbevoie
Attention: Legal Affairs Department
Fax: 33-1-47-62-3683
10
<PAGE> 11
If to Company:
Unifrax Corporation
2351 Whirlpool Street
Niagara Falls, New York 14305
Attention: Vice President Sales & Marketing
Fax: 716-278-2963
Any party may change the address to which such communications
are to be directed to it by giving written notice to the other
in the manner specified in this ARTICLE 11.01.
11.02 Entire Agreement. This Agreement and the attached schedules
referred to herein set forth the entire agreement and
understanding of the parties in respect to the transactions
contemplated hereby and supersede all prior agreements,
arrangements and undertakings relating to the subject matter
hereof.
11.03 Sucessors and Assigns. This Agreement shall be binding on and
inure to the benefit of SEPR and Company and their respective
successors. Except that Company must assign all of its rights
and obligations herein to any purchaser or assignee of
substantially all of NAF's assets, this Agreement and the
rights and obligations of the parties thereto may not be
assigned without the prior written consent of the other party
hereto.
11.04 Amendment. This Agreement may be amended, modified, superseded
or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or, in the
case of a waiver, by or on behalf of the party waiving
compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No
waiver by any party of any condition, or of any breach of any
term, covenant, representation or warranty contained in this
Agreement, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of any
breach of any other term, covenant, representation or
warranty.
11.05 Headings/Counterpart. The article or section headings
contained in this Agreement are for convenient reference only,
and shall not in any way affect the meaning or interpretation
of this Agreement. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which shall constitute
but one.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in two original copies by their duly authorized representatives as of
the day and year first above written.
UNIFRAX CORPORATION SOCIETE EUROPEENNE DES
PRODUITS REFRACTAIRES
By: ______________________ By: _________________________
Name: Christopher C. Clarke Name:_______________________
Title: Attorney-In-Fact Title:
12
<PAGE> 13
APPENDIX A
Price Adjustment
On a quarterly basis, NAF will carry out a reconciliation of deliveries of jumbo
rolls to SEPR and SEPR's inventory of jumbo rolls and uninvoiced die-cut pieces
on hand produced against a specific order from NAF (excluding any substandard or
off-specification parts), against the number of toll die-cut pieces invoiced by
SEPR using the standard yield for each part number as the benchmark. NAF shall
submit the reconciliation calculation to SEPR within 30 days of the end of each
quarter. In the event that the total produced is lower than the standard yield
multiplied by the number of jumbo rolls used, then SEPR shall pay NAF for the
shortfall. The reimbursement for the shortfall shall be made by way of a credit
note against the next month invoices.
The adjustment shall be calculated by multiplying the total area (in cm2) of the
difference between the standard and actual yield for each part number by the
Standard Cost of Production per cm2 for such grade of XPE produced as a jumbo
roll.
In the event that the total produced is higher than the standard yield then NAF
shall pay an additional amount to SEPR. The adjustment shall be calculated by
multiplying the total area (in cm2) of the difference between the standard and
the actual yield for each part number by the Standard Cost of Production per cm2
for such grade of XPE produced as a jumbo roll.
If SEPR disagrees with the reconciliation, they shall notify NAF within 10 days.
The parties will then meet during the next 20 days in a good faith attempt to
resolve the difference. In the event that they fail to reach agreement, the
dispute will be put to arbitration, which will be binding. The parties will
select an independent accounting firm having no business relationship with
either NAF in the USA or SEPR either in France or in the country in question.
Reimbursement for Off-specification Production
In the event that a customer of NAF rejects a delivery or number of parts of
die-cut XPE through failure to comply with the specification or for other reason
of defect then the following compensation mechanism shall be employed.
In the event that the defect or failure to meet specification is the fault of
NAF, then NAF shall pay the invoices for the production of such parts by SEPR
and shall return to SEPR, at NAF's cost, such defective parts and pay SEPR for
the disposal thereof.
In the event that the defect or failure to meet specification is the fault of
SEPR, then NAF shall return to SEPR, at SEPR's cost, such defective parts and
SEPR shall dispose of the parts at SEPR's cost. SEPR shall compensate NAF for
the die-cutting fee for the defective parts and shall further reimburse NAF for
the material cost of the defective parts. Such reimbursement shall be calculated
by multiplying the area of defective parts returned, by the Standard Cost of
Production of such grade of XPE produced as a jumbo roll. SEPR shall further
compensate NAF for carriage costs to the customer and freight and import costs
for replacement jumbo rolls. Compensation shall be made in the form of a credit
note against future toll die-cutting fees unless the amount of compensation is
such that the period for recovery of the credit would run beyond the expiry date
of this Agreement in which case the total amount of the compensation shall be
paid in cash.
NB: Standard Cost of Production excludes Factory Administration.
4
<PAGE> 14
EXAMPLE
GERMANY 1994 & 1995
- - Total Fixed = [ * ]
- - Total Variable = [ * ]
- - Total CM(2) for 1994 = [ * ]
- - Fixed rate monthly charge = [ * ]
- - Base variable reimbursement rate for '94 = [ * ]
- - Inflation rate for 1995 = [ * ]
- - Base variable reimbursement rate for 1995 = [ * ]
- - Variable reimbursement rate for [ * ]
- - Review cost experience semi-annually and adjust variable rate as
necessary.
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
5
<PAGE> 15
APPENDIX A
GERMANY
1994 DIE CUTTING COSTS
(EXCLUDING MATERIALS)
See Schedules Attached (2 & 3)
<TABLE>
<CAPTION>
DM $
-- -
<S> <C> <C> <C>
Fixed Costs
Building Use [ * ]
Maintenance [ * ]
Supervision
[ * ] x direct cost excluding paper
[ * ] [ * ]
Depreciation [ * ]
ROCE (NFA year-end)
[ * ]
Variable Costs
Labor [ * ]
Utilities, etc. [ * ]
Total Die Cutting Costs
</TABLE>
Note exchange rate [ * ] except NFA
* To nearest $000.
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
6
<PAGE> 16
APPENDIX A
German Operation
Revised 1994 Submission
Fixed Assets and Depreciation 1994
<TABLE>
<CAPTION>
BALANCE DEPRECIATION
ASSET DESCRIPTION 31/12/94 1994 BASIS 1994
- ----------------- -------- ---- ----------
DM DM
<S> <C> <C> <C>
Direct Assets
Die Cutter [ * ]
Stepmotor [ * ]
Heating [ * ]
Tools, etc [ * ]
QC Assets
Instrar Machine [ * ]
XPE Lab Equipment [ * ]
Ionizer [ * ]
Scales [ * ]
[ * ]
TOTAL COSTS
Production [ * ]
Add
QQ Occupancy [ * ]
QC Dep [ * ]
[ * ]
Less
Paper [ * ]
Dep [ * ]
Occupancy [ * ]
Repairs [ * ]
Labor [ * ]
Utilities & Consumables [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
7
<PAGE> 17
APPENDIX A
BRAZIL
<TABLE>
<S> <C> <C> <C>
NFA
As previous schedule [ * ]
Building additions for XPE included in previous submission in error
NBV @31/12/84 [ * ]
As previously submitted [ * ]
</TABLE>
<TABLE>
<S> <C> <C> <C>
Depreciation Basis
Machinery/Equipment [ * ]
Furniture/Fittings [ * ]
Hardware [ * ]
Software [ * ]
Note building additions [ * ]
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Costs - As 1994 Schedule [ * ]
Make-Up
Material [ * ]
Packaging [ * ]
Labor, etc. [ * ]
Maintenance [ * ]
Depreciation [ * ]
Other [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately with the
S.E.C.
8
<PAGE> 18
APPENDIX A
1996 CHARGES & INFLATION
<TABLE>
<CAPTION>
BRAZIL GERMANY
------ -------
<S> <C> <C>
Labor [ * ] [ * ]
[ * ] [ * ]
Utilities, etc. [ * ] [ * ]
[ * ] [ * ]
Maintenance (labor) [ * ] [ * ]
[ * ] [ * ]
Supervisor (labor) [ * ] [ * ]
[ * ] [ * ]
ROCE
20% on 1995 balance [ * ](1) [ * ](2)
</TABLE>
1 [ * ]
2 [ * ]
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
9
<PAGE> 19
APPENDIX B*
BRAZIL
<TABLE>
<CAPTION>
FINAL WEIGHT OF YIELD EXPECTED GROSS PIECE
ITEM NO. PIECE [LBS.] [%] WEIGHT [LBS.]
-------- ------------ --- -------------
<S> <C> <C> <C>
67471 [ * ]
67472 [ * ]
67474 [ * ]
67480 [ * ]
67486 [ * ]
67475 [ * ]
</TABLE>
GERMANY
<TABLE>
<CAPTION>
ITEM NO. FINAL WEIGHT OF YIELD EXPECTED GROSS PIECE
(FFX-NO. PIECE [KG]** [%] WEIGHT [KG]
-------- ------------ --- -----------
<S> <C> <C> <C>
2013 [ * ]
2148 [ * ]
2258 [ * ]
2528 [ * ]
2598 [ * ]
2598A [ * ]
2633 [ * ]
2652 [ * ]
2668 [ * ]
2708 [ * ]
2776 [ * ]
2785 [ * ]
2797 [ * ]
2799 [ * ]
2812 [ * ]
2812A [ * ]
2817 [ * ]
2836 [ * ]
2837 [ * ]
2850 [ * ]
2893 [ * ]
2894 [ * ]
2895 [ * ]
2896 [ * ]
2900 [ * ]
2901 [ * ]
2902 [ * ]
2906 [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
10
<PAGE> 20
GERMANY
(continued)
<TABLE>
<CAPTION>
ITEM NO. FINAL WEIGHT OF YIELD EXPECTED GROSS PIECE
(FFX-NO. PIECE [KG]** [%] WEIGHT [KG]
-------- ------------ --- -----------
<S> <C> <C> <C>
2916 [ * ]
2917 [ * ]
2955A [ * ]
2959 [ * ]
2972 [ * ]
2976 [ * ]
2977 [ * ]
2979 [ * ]
2983 [ * ]
2988A [ * ]
2999 [ * ]
3000 [ * ]
3018 [ * ]
3021 [ * ]
3036 [ * ]
3054 [ * ]
3058 [ * ]
3061 [ * ]
3087 [ * ]
3088 [ * ]
3089 [ * ]
3093 [ * ]
3096 [ * ]
3097 [ * ]
3098 [ * ]
3104 [ * ]
3107 [ * ]
3108 [ * ]
3115 [ * ]
3116 [ * ]
3120 [ * ]
3121 [ * ]
3143 [ * ]
3153 [ * ]
3154 [ * ]
3158 [ * ]
3159 [ * ]
3160 [ * ]
3161 [ * ]
3162 [ * ]
</TABLE>
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
11
<PAGE> 21
GERMANY
(Continued)
<TABLE>
<CAPTION>
ITEM NO. FINAL WEIGHT OF YIELD EXPECTED GROSS PIECE
(FFX-NO. PIECE [KG] [%] WEIGHT [KG]
<S> <C> <C> <C>
3175 [ * ]
3183 [ * ]
3186 [ * ]
</TABLE>
* To calculate the number of good pieces in any given roll, the following
is needed:
1) roll weight
2) weight of piece
3) yield expected
For example:
Roll weight = [ * ]
Weight of piece = [ * ]
Yield expected = [ * ]
Gross piece weight = [ * ]
Gross piece per roll = [ * ]
** 1 Kilogram = 2.205 Lbs.
* Brackets indicate confidential material omitted and filed separately
with the S.E.C.
12
<PAGE> 1
Exhibit 10.15
TAX SHARING AGREEMENT
This Tax Sharing Agreement (this "Agreement") is among
UNIFRAX HOLDING CO. ("Unifrax") and its subsidiary, UNIFRAX
CORPORATION ("Subsidiary").
WHEREAS, Unifrax owns 90% of the outstanding shares of stock
of Subsidiary;
WHEREAS, Unifrax and Subsidiary have chosen to file
consolidated federal income tax returns ("Consolidated Returns") and various
consolidated, combined, or unitary state or local income or franchise tax
returns ("Combined Returns"); and
WHEREAS, the parties hereto desire to (i) set forth the basis
on which the tax liabilities determined under the Consolidated Returns and
Combined Returns will be allocated among them and other corporations (if any)
that join in the filing of such returns and (ii) provide for a payment mechanism
to compensate members whose deductions, net operating losses, or credits are
used by another member;
NOW, THEREFORE, in consideration of the premises, covenants,
and agreements contained herein, the parties hereto agree as follows:
(1) The Subsidiary (a) agrees to join with Unifrax in the
filing of Consolidated Returns and (b) agrees to continue such consolidated
return filings for each taxable year during which (i) Unifrax is the "common
parent" corporation of an "affiliated group" of corporations (the "Unifrax
Group") (as those terms are used in section 1504 of the Internal Revenue Code of
1986, as amended (the "Code")) and (ii) the Subsidiary is eligible to join in
the filing of such return;
(2) The Subsidiary hereby irrevocably designates Unifrax as
its agent for the purpose of taking any and all action necessary or incidental
to the filing of Consolidated Returns. The Subsidiary agrees to furnish Unifrax
with any and all information requested by Unifrax in order to carry out the
provisions of this Agreement; to cooperate with Unifrax in filing any return or
consent contemplated by this Agreement; to take such action with respect to such
returns as Unifrax may request, including, but not limited to, the filing of all
elections and the filing of requests for the extension of time within which to
file tax returns; and to cooperate in connection with any audit or refund claim;
(3) The Unifrax Group will elect upon the filing of its first
consolidated return (i) basic method 2 as described in Section 1552(a)(2) of the
Code, and (ii) the percentage method (using 100 percent) under Section
1.1502-33(d) of the regulations. Notwithstanding the foregoing and
notwithstanding
<PAGE> 2
any other provision of this Agreement, for purposes of determining the separate
tax liability of Subsidiary, any deduction relating to the Covenant not to
Compete dated as of the date hereof between British Petroleum Company p.l.c.
(acting for itself and jointly and severally on behalf of its affiliates) and
Unifrax Holding Co. shall be treated as a deduction of Subsidiary.
(4) (a) Unifrax shall prepare or cause to be prepared the
Consolidated Returns of the Unifrax Group and shall pay all taxes (including
penalties and interest) reported on such returns to the Internal Revenue Service
(the "IRS"). Not later than ten (10) days before Unifrax makes a payment to the
IRS of any taxes due with respect to a Consolidated Return of the Unifrax Group
(including estimated taxes), Subsidiary shall pay to Unifrax an amount equal to
(i) its share of such tax liability as determined in paragraph (3) above, plus
(ii) additional amounts, if any (and if not already paid for under this
paragraph (4)(a)), owed as a result of using deductions, net operating losses or
tax credits of another member as set forth in paragraph (4)(b) below.
(b) For any taxable period for which a Consolidated Return
is filed for the Unifrax Group pursuant to this Agreement, Unifrax shall pay
those members of the Unifrax Group whose deductions, net operating losses or tax
credits are absorbed or otherwise used by another member of the group pursuant
to the method described in Paragraph (3) above, in a consistent manner
determined by Unifrax that reasonably reflects the value of such deductions, net
operating losses or tax credits.
(c) If the federal income tax liability of the Unifrax
Group as reported on a Consolidated Return filed pursuant to this Agreement is
adjusted for any taxable period, whether by means of an amended return, claim
for refund, or audit by the IRS, the liability of each member of the Unifrax
Group shall be recomputed under the relevant section of this Agreement to give
effect to those adjustments as if such adjustments (including interest and
penalties, if any) had been part of the original determination hereunder. In the
case of a refund, Unifrax shall make payment to each party of its share of the
refund within ten (10) days after the refund is received by Unifrax and, in the
case of an increase in tax liability, each party shall pay to Unifrax its
allocable share of such increased tax liability at least ten (10) days prior to
the date that Unifrax reasonably expects to pay such liability to the IRS. If
any interest is to be paid or received as a result of any tax deficiency or
refund, that interest shall be allocated by Unifrax to the members in the ratio
that each member's change in income tax liability bears to the total change in
the income tax liability of the Unifrax Group. If any penalty is to be paid or
received as a result of any tax deficiency or refund, that penalty shall be
allocated by
-2-
<PAGE> 3
Unifrax to the members that are responsible for the imposition of such penalty.
(5) This Agreement shall not apply with respect to the
carryback of any net operating loss, tax credit, or other tax benefit generated
by a party and attributable to a taxable year beginning after the date hereof in
which such party is not a member of the Unifrax Group.
(6) The Subsidiary agrees at the request of Unifrax to join
with Unifrax or any direct or indirect subsidiary of Unifrax in any
consolidated, combined, or unitary state or local income or franchise tax return
for any taxable year in which Unifrax or any direct or indirect subsidiary of
Unifrax elects to file a Combined Return that includes the Subsidiary. If at any
time after the date of this Agreement, the liability for any state or local
income or franchise tax of Unifrax, the Subsidiary and/or any other affiliated
corporation is determined on a unitary, consolidated, or combined basis, this
Agreement shall be applied by Unifrax to such state or local tax in like manner
as it is applied to matters relating to federal income taxes, after taking into
consideration the extent to which each party has been included in a Combined
Return that relates to those taxes.
(7) Absent bad faith or gross misconduct, Unifrax shall have
no liability for any action taken or omitted to be taken by it in connection
with this Agreement.
(8) This Agreement shall be binding upon and inure to the
benefit of any successor to any party. If for any reason the Subsidiary no
longer is a member of the Unifrax Group, its rights and obligations under this
Agreement with respect to periods during which it was a member of the Unifrax
Group shall survive and be fully enforceable.
(9) This Agreement embodies the entire understanding among the
parties as to the subject matter hereof, and no change or modification may be
made except in writing signed by each of the parties.
(10) The waiver of a breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other breach of
the same or any other term or condition.
(11) This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
(12) This Agreement is entered into in and shall be construed
in accordance with the laws of the State of Delaware.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Tax
Allocation Agreement to become effective as of October____, 1996.
UNIFRAX HOLDING CO.
By:
--------------------------------
Name:
Title:
UNIFRAX CORPORATION
By:
--------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.16
ADVISORY SERVICES AGREEMENT
THIS ADVISORY SERVICES AGREEMENT (this "Agreement") is made as
of October___, 1996, by and between Unifrax Corporation, a Delaware corporation
("Company"), and Kirtland Capital Corporation, an Ohio corporation ("KCC").
Agreements
----------
NOW, THEREFORE, in consideration of the mutual covenants in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM OF SERVICE. During the Term (as hereinafter defined), KCC shall
provide such management consulting and financial advisory services to the
Company from time to time as may be agreed upon by the Company and KCC. This
Agreement shall remain in full force and effect for a period (the "Term")
beginning on the date hereof and ending on the date that none of Kirtland
Capital Partners II L.P., Unifrax Investments Ltd. and Kirtland Capital Company
II LLC owns, directly or indirectly through Unifrax Holding Co. or otherwise,
any shares of the capital stock of the Company.
2. COMPENSATION. (a) On the date hereof, the Company shall pay KCC a
debt structuring fee of $500,000 and shall reimburse KCC for all out of pocket
expenses incurred by KCC as compensation for its services as financial advisor
for the Company. During the Term, the Company shall pay KCC an annual consulting
fee equal to $300,000 (the "Consulting Fee") in accordance with 3(b) of this
Agreement. The Consulting Fee may be increased to not more than $500,000 upon
the approval of the members of the Board of Directors who do not have a direct
financial interest in KCC. The Company shall promptly reimburse KCC for all out
of pocket expenses incurred by KCC in connection with its performance of service
under this Agreement. Additionally, if the Company completes the acquisition of
another business or entity, the Company shall pay KCC a financing and
structuring fee equal to 1% of the gross purchase price of such acquisition
(including any assumed debt).
(b) The Company shall pay the Consulting Fee on a monthly
basis in arrears by the 10th day of each month beginning December, 1996,
PROVIDED, HOWEVER, that if either the Indenture dated as of October___, 1996 by
and among the Company and _______________ as Trustee as such Indenture may be
amended from time to time (the "Indenture") or the Credit Agreement, dated as of
___________, 1996, by and among ________ __________________________________ as
such agreement may be amended from time to time (the "Credit Facility"),
precludes any monthly payment hereunder, any such payments shall accrue and
shall be paid when permitted under the terms of the Indenture or the Credit
Facility.
<PAGE> 2
3. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may be amended only by a
writing executed by the parties to this Agreement.
(b) ENTIRE AGREEMENT. This Agreement sets forth the parties'
entire understanding regarding the subject matter of this Agreement and
supersedes all prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written, between
the parties regarding the subject matter of this Agreement.
(c) GOVERNING LAW. This Agreement shall in all respects be
governed by, and construed in accordance with, the internal substantive laws of
the State of Ohio.
(d) WAIVERS. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by any other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which together will constitute one and the same instrument.
(f) THIRD PARTIES. Nothing expressed or implied in this
Consulting Agreement is intended, or shall be construed, to confer upon or give
any person or entity other than the Company and KCC any rights or remedies
under, or by reason of, this Advisory Services Agreement.
(g) INDEMNIFICATION. Absent bad faith or gross misconduct, KCC
shall have no liability to the Company or any other party for any action taken
or omitted to be taken by it in connection with this Agreement. The Company
shall indemnify and hold harmless KCC and its shareholders, directors, officers,
employees and affiliates from and against any liability, loss, cost or expense
incurred by or imposed upon KCC as a result of or arising from this Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, each of the parties has duly executed and
delivered this Agreement as of the date first written above.
UNIFRAX CORPORATION
By:______________________________
Name:_________________________
Title:________________________
KIRTLAND CAPITAL CORPORATION
By:______________________________
Name:_________________________
Title:________________________
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Data," and to the use of our reports dated April
19, 1996 (except Notes 1 and 14, as to which the date is June 9, 1996) with
respect to the financial statements and schedule of the North American Fibers
Division of Unifrax Corporation and our report dated August 20, 1996 with
respect to the balance sheet of Unifrax Investment Corp. in Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-10611) and related Prospectus of
Unifrax Investment Corp. dated October 24, 1996.
/s/ ERNST & YOUNG LLP
Buffalo, New York
October 24, 1996
153
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Unifrax Corporation
We are aware of the inclusion in Amendment No. 3 to the Registration Statement
(Form S-1 No. 333-10611) and related Prospectus of Unifrax Investment Corp.
dated October 24, 1996 of our report dated July 10, 1996 related to the
unaudited interim combined financial statements of Unifrax Corporation, XPE
Vertriebs GmbH and NAF Brasil Ltda. as of June 30, 1995 and 1996 and for the
six-month periods then ended.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ ERNST & YOUNG LLP
Buffalo, New York
October 24, 1996
<PAGE> 1
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _____
PNC BANK, NATIONAL ASSOCIATION
(Exact Name of Trustee as Specified in its Charter)
NOT APPLICABLE
(Jurisdiction of incorporation or
organization if not a U.S. national bank)
25-1197336
(I.R.S. Employer Identification No.)
One PNC Plaza
Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices - Zip code)
F. J. Deramo, Vice President, PNC Bank, National Association
27th Floor, One Oliver Plaza, Pittsburgh, Pennsylvania 15222-2602
(412) 762-3666
(Name, address and telephone number of agent for service)
UNIFRAX INVESTMENT CORP.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
34-1839043
(I.R.S. Employer Identification No.)
2351 Whirlpool Street
Niagara Falls, New York 14305
(Address of principal executive offices - Zip code)
_____% Senior Notes due 2003
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
<TABLE>
<S> <C>
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, Ohio
Federal Deposit Insurance Corporation Washington, D.C.
</TABLE>
(b) Whether it is authorized to exercise corporate trust
powers.
Yes. (See Exhibit T-1-3)
ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
If the obligor or any underwriter for the obligor is an affiliate of
the trustee, describe each such affiliation.
Neither the obligor nor any underwriter for the obligor is an
affiliate of the trustee.
ITEM 3 THROUGH ITEM 14.
The issuer currently is not in default under any of its outstanding
securities for which PNC Bank is trustee. Accordingly, responses to
Items 3 through 14 of Form T-1 are not required pursuant to Form T-1
General Instructions B.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under the indentures qualified or to
be qualified under the Act.
Not applicable (trustee is not a foreign trustee).
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
<TABLE>
<S> <C> <C>
Exhibit T-1-1 - Articles of Association of the trustee, with all amendments
thereto, as presently in effect, filed as Exhibit 1 to Trustee's
Statement of Eligibility and Qualification, Registration No.
33-58107 and incorporated herein by reference.
Exhibit T-1-2 - Copy of Certificate of the Authority of the Trustee to
Commence Business, filed as Exhibit 2 to Trustee's
Statement of Eligibility and Qualification, Registration No.
2-58789 and incorporated herein by reference.
Exhibit T-1-3 - Copy of Certificate as to Authority of the Trustee to
Exercise Trust Powers, filed as Exhibit 3 to Trustee's
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C> <C>
Statement of Eligibility and Qualification, Registration No.
2-58789, and incorporated herein by reference.
Exhibit T-1-4 - The By-Laws of the trustee.
Exhibit T-1-5 - The consent of the trustee required by Section 321(b) of the
Act.
Exhibit T-1-6 - The copy of the Balance Sheet taken from the latest Report
of Condition of the trustee published in response to call
made by Comptroller of the Currency under Section 5211
U.S. Revised Statutes.
</TABLE>
NOTE
The answers to this statement, insofar as such answers relate to (a) what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or are owners of 10% or more
of the voting securities of the obligor, or are affiliates or directors or
executive officers of the obligor, and (b) the voting securities of the trustee
owned beneficially by the obligor and each director and executive officer of the
obligor, are based upon information furnished to the trustee by the obligor and
also, in the case of (b) above, upon an examination of the trustee's records.
While the trustee has no reason to doubt the accuracy of any such information
furnished by the obligor, it cannot accept any responsibility therefor.
------------------------------
Signature appears on next page
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, PNC Bank, National Association, a corporation organized and existing
under the laws of the United States of America, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania on
October 8, 1996.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By ___________________________________
Richard A. Ranii
Assistant Vice President
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<PAGE> 5
Exhibit T-1-4
PNC BANK, NATIONAL ASSOCIATION
BY-LAWS
(as amended and restated on April 9, 1996)
Article I. Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of the Bank
for the election of Directors and the transaction of all other business that may
properly come before the meeting shall be held at the Pittsburgh National
Building or other convenient place selected by the Directors, on the Tuesday
that next follows the annual meeting of the shareholders of PNC Bank Corp. If
for any reason no such election of Directors is made on that day, the Board of
Directors shall order the election to be held on some subsequent day, as soon
thereafter as practicable.
Section 2. Special Meetings. Special meetings of the shareholders shall be held
when called by the Board of Directors or when called in writing by one or more
shareholders owning in the aggregate not less than ten per centum of the
outstanding shares of stock of the Bank.
Section 3. Notice and Record Date. Notice of shareholders' meetings shall be
given in the manner set forth in Article VIII, Section 5, not less than ten days
nor more than sixty prior to the meeting. The Board of Directors may fix a date
not less than ten nor more than forty days prior to the annual meeting or any
special meeting of the shareholders as the record date for the determination of
shareholders entitled to notice of and to vote at any such meeting, or any
adjournment thereof, and only shareholders of record on the date so fixed shall
be entitled to notice of and to vote at any meeting, or any adjournment thereof.
In no event shall the record date as fixed by the Board of Directors be prior to
the date on which the action is taken fixing such record date.
Section 4. Quorum, Shareholder Action. A majority of the shares outstanding
represented in person or by proxy shall constitute a quorum. Less than a quorum
may adjourn any meeting from time to time and the meeting may be held as
adjourned without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any duly convened
meeting unless otherwise provided by law. Shareholders may vote in person or by
proxy duly authorized in writing, but no officer or employee of the Bank may act
as proxy.
Section 5. Written Action of Shareholders. Any action which may be taken at a
meeting of the shareholders of the Bank may be taken without a meeting if a
consent in writing setting forth the action so taken, signed by all the
shareholders who would be entitled to vote at a meeting for such purpose, and
such written consent shall be filed with the Secretary of the Bank.
Article II. Directors
Section 1. Board of Directors. The Board of Directors shall have the power to
manage and administer the business and affairs of the Bank. Except as expressly
limited by law, all corporate powers of the Bank shall be vested in and may be
exercised by the Board of Directors.
Section 2. Number. The Board of Directors shall consist of not less than five
nor more than twenty-five individuals, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the Board or by resolution of a majority of the shareholders.
Between annual meetings of shareholders, the Board of Directors, by vote of
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<PAGE> 6
a majority of the Board, may increase the membership of the Board, within the
maximum above prescribed, by not more than four members and, by like vote,
appoint individuals to fill the vacancies created thereby.
Section 3. Election; Term of Office. The Board of Directors shall be elected at
each annual meeting of the shareholders. Each Director shall hold office from
the time of his election and his qualification to serve as such and until the
election and qualification of his successor or until such Director's earlier
death, resignation, disqualification or removal.
Section 4. Organization Meeting. A meeting of the Board of Directors for the
purpose of organizing the new Board, appointing the officers of the Bank for the
ensuing year and transacting other business shall be held without notice
immediately following the annual election of the Directors or as soon thereafter
as is practicable at such time and place as the Secretary may designate.
Section 5. Regular Meetings. The regular meetings of the Board of Directors
shall be held, without notice, at such times and places as the Board of
Directors shall by resolution determine.
Section 6. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President and shall be called at the
request of any three Directors. Notice of special meetings shall be given in the
manner set forth in Article VIII, Section 5.
Section 7. Quorum; Board Action. A majority of the Directors then in office
shall constitute a quorum for the transaction of business at any meeting. Unless
otherwise provided by law, any action of the Board of Directors may be taken
upon the affirmative vote of a majority of the Directors present at a duly
convened meeting.
Section 8. Vacancies. Any vacancy in the Board of Directors may be filled by
appointment by a majority of the remaining Directors at any regular meeting or
at a special meeting called for that purpose.
Section 9. Participation Other Than By Attendance. To the extent permitted by
law, any Director may participate in any regular or special meeting of the Board
of Directors or of any committee of the Board of Directors by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting are able to hear each other.
Section 10. Written Action of Directors. Any action which may be taken by the
Directors at a duly convened meeting may be taken upon the unanimous written
consent of the Directors.
Section 11. Compensation. Each director, advisory director, and member of an
Advisory Board of a branch office, who is not a salaried officer, shall receive
compensation in such amount and in such manner as the Board of Directors may
from time to time determine.
Section 12. Resignation; Removal. Any Director may resign by submitting his
resignation to the Chief Executive Officer, the Chairman, the President or the
Secretary. Such resignation shall become effective upon its submission or at any
later time specified. Any Director may be removed from office by action of the
shareholders or the Board taken in accordance with applicable law.
-6-
<PAGE> 7
Section 13. Personal Liability for Monetary Damages.
(a) To the fullest extent permitted by applicable law, each Director
shall be indemnified and held harmless by the Bank for all actions taken by him
or her and for all failures to take action to the fullest extent permitted by
Pennsylvania law against all expense, liability and loss (including without
limitation attorneys' fees, judgments, fines, taxes, penalties, and amounts paid
or to be paid in settlement) reasonably incurred or suffered by him or her. No
indemnification pursuant to this Section 13 shall be made, however, in any case
where the act or failure to act giving rise to the claim for indemnification is
determined by a court of competent jurisdiction to have constituted willful
misconduct or recklessness.
(b) This Section 13 shall not apply to any administrative proceeding or
action instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties or requiring
affirmative action by the Director in the form of making payments to the Bank.
(c) The provisions of this Section 13 shall be deemed to be a contract
with each Director of the Bank who serves as such at any time while this Section
13 is in effect and each such Director shall be deemed to be doing so in
reliance on the provisions of this Section 13. Any amendment or repeal of this
Section 13 or adoption of any other provision of the By-Laws or the Articles of
the Association which has the effect of increasing Director liability shall
operate prospectively only and shall not affect any action taken, or any failure
to act, prior to the adoption of such amendment, repeal or other provision.
Section 14. Corporate Governance Procedures. The Board of Directors and each
committee thereof shall have the authority to adopt or otherwise avail itself of
such corporate governance procedures as may be included from time to time in the
Pennsylvania Business Corporation Law of 1988, provided that any such procedure
complies with, or is not inconsistent with, applicable federal banking statutes
and regulations, and safe and sound banking practices.
Article III. Committees
Section 1. Appointment; Powers. In addition to the Committees described in this
Article III, the Board may appoint one or more standing or temporary committees
consisting of two or more Directors. The Board may invest such committees with
such power and authority, subject to such conditions, as it may see fit.
Section 2. Executive Committee. The Board may appoint from among its members an
Executive Committee which, to the maximum extent permitted by law or as
otherwise provided herein shall have and exercise in the intervals between the
meetings of the Board of Directors all the powers of the Board of Directors. All
acts done and powers conferred by the Executive Committee from time to time
shall be deemed to be, and may be certified as being, done and conferred under
authority of the Board of Directors. Four directors shall constitute a quorum
regardless of whether the directors present shall have been formally appointed
to the Executive Committee, and the action of a majority of the directors
present at a meeting, unless a majority of such Directors are officers of the
Bank, shall decide any matter or question submitted to the Executive Committee.
Section 3. Examining Committee. The Board shall appoint from among its members
an Examining Committee which shall be composed of not less than three directors,
none of whom shall be officers
-7-
<PAGE> 8
of the Bank. The Board of Directors shall select a Chairman from the Committee's
membership and the Committee may appoint a Secretary who need not be a director.
The Committee shall meet on call of its Chairman. The duties and
responsibilities of the Committee shall be as required by law and as assigned
from time to time by the Board of Directors.
Section 4. CRA Policy Committee. The Board of Directors shall appoint from among
its members a Community Reinvestment Act Policy Committee which shall consist of
not less than three directors, and such other officers who shall from time to
time be appointed by the Board of Directors. The duties and responsibilities of
the Committee shall be as assigned from time to time by the Board of Directors.
Section 5. Personnel and Compensation Committee. The Board may appoint from
among its members a Personnel and Compensation Committee. The duties and
responsibilities of the Committee shall be as assigned by the Board of
Directors.
Section 6. Nominating Committee. The Board may appoint from among its members a
Nominating Committee. The duties and responsibilities of the Committee shall be
as assigned by the Board of Directors.
Section 7. Fiduciary Committee. The Board may appoint from among its members a
Fiduciary Committee. The duties and responsibilities of the Committee shall be
as assigned by the Board of Directors.
Section 8. Credit Committee. The Board may appoint from among its members a
Credit Committee. The duties and responsibilities of the Committee shall be as
assigned by the Board of Directors.
Section 9. Asset and Liability Management Committee. The Board may appoint from
among its members an Asset and Liability Management Committee. The duties and
responsibilities of the Committee shall be as assigned by the Board of
Directors.
Section 10. Organization. All committees shall determine their own organization,
procedures and times and places of meeting, unless otherwise directed by the
Board and except as otherwise provided in these By-Laws. A majority of the
Directors appointed to a committee shall constitute a quorum for the transaction
of business at any meeting unless as otherwise provided in these By-Laws. In the
case of committees with an even number of Directors appointed to the committees,
one-half of the Directors shall constitute a quorum. Unless otherwise prevented
by law or by the procedures established by the committee, any action of a
committee may be taken upon the affirmative vote of a majority or one-half, as
the case may be, of the Directors present at a duly convened meeting or upon the
unanimous written consent of all Director members.
Section 11. Advisory Boards. Any branch office, with the approval of the Board
of Directors or the Chief Executive Officer, may have an Advisory Board
consisting of Directors, officers or members of the public, who may from time to
time be appointed by the Board of Directors or the Chief Executive Officer or
his designee. The Chairman of each Advisory Board shall be designated by the
Board of Directors or the Chief Executive Officer. Each Advisory Board shall
meet at such time or times as shall be determined by the Chairman of such
Advisory Board. Advisory Boards shall be established for informational and
marketing purposes only and shall not have any duties, powers or
responsibilities.
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<PAGE> 9
Article IV. Officers
Section 1. Officers Generally. The officers of the Bank, in order of precedence
or rank, shall be a Chairman of the Board; one or more Vice Chairmen, if any; a
President; one or more Vice Presidents, of whom one or more may be designated,
in order of precedence or rank, Senior Executive, Executive or Senior Vice
Presidents, and one of whom may be designated as responsible to direct, manage
and supervise all fiduciary activities; a Cashier; a Secretary; a Controller; an
Audit Director; and such other officers and functional officer titles, as the
Board of Directors, the Chairman, the Vice Chairman or the President may from
time to time designate. The Board of Directors shall from time to time designate
from among the Chairman of the Board, the Vice Chairmen and the President, one
of these officers to be the Chief Executive Officer.
Section 2. Elections; Appointment. All officers having the rank of Senior Vice
President or higher, shall be elected by the Board of Directors and shall hold
office during the pleasure of the Board of Directors. All other Vice Presidents
and other officers shall be appointed by the Chairman of the Board, a Vice
Chairman or President or other officer authorized by the Board of Directors to
appoint officers, and such action shall be reported to the Board of Directors.
Section 3. Chief Executive Officer. The Chief Executive Officer shall have the
general supervision of the policies, business and operations of the Bank; shall
have general executive powers as well as those duties and powers as may be
assigned by the Board of Directors; and shall have all other powers and duties
as are usually incident to the chief executive officer of a national bank. In
the absence of the Chief Executive Officer his powers and duties shall be
performed by such other officer or officers as shall be designated by the Board
of Directors.
Section 4. Chairman. The Chairman of the Board shall have general executive
powers, shall preside at all meetings of the shareholders and shall have such
other powers and duties as may be assigned to him from time to time by the Board
of Directors.
Section 5. Vice Chairman. A Vice Chairman shall have general executive powers
and shall have such duties and powers as shall be assigned from time to time by
the Board of Directors or the Chief Executive Officer.
Section 6. President. The President shall have general executive powers and
shall have such duties and powers as may be assigned to him from time to time by
the Board of Directors.
Section 7. Senior Officers; Vice Presidents. The Senior Executive, Executive,
and Senior Vice Presidents as well as all other Vice Presidents shall have such
duties and powers as may from time to time be assigned to them by the Board of
Directors or by the Chief Executive Officer. Any reference in these By-Laws to a
Vice President shall apply equally to a Senior Executive, Executive, or a Senior
Vice President unless the context otherwise requires.
Section 8. Vice President in Charge of Trusts. The Vice President in Charge of
Trusts, if any, under the direction of the Chief Executive Officer, shall
direct, manage and supervise all fiduciary activities of the Bank and shall be
responsible to the Board of Directors, the Chief Executive Officer and the
Fiduciary Committee for the administration of the Bank's fiduciary powers. He
shall have such other duties and powers as may be assigned to him by the Board
of Directors or the Chief Executive Officer.
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<PAGE> 10
Section 9. Cashier. Unless otherwise delegated to another officer or officers by
the Board of Directors, the Cashier shall be responsible for all moneys, funds,
securities, fidelity and indemnity bonds and other valuables belonging to the
Bank, exclusive of the assets held by the Bank in a fiduciary capacity; shall
cause to be kept proper records of the transactions of the Bank; and shall
perform such other duties as may be assigned to him by the Board of Directors or
the Chief Executive Officer.
Section 10. Secretary. The Secretary shall attend the meetings of the
shareholders, of the Board of Directors, and of the Executive Committee, if any,
and shall keep minutes thereof in suitable minute books. He shall have charge of
the corporate records, papers, and the corporate seal of the Bank. He shall have
charge of the stock and transfer records of the Bank and shall keep a record of
all shareholders and give notices of all meetings of shareholders and special
meetings of the Board of Directors. He shall perform such other duties as may be
assigned to him by the Board of Directors or the Chief Executive Officer.
Section 11. Trust Officers. The Officers performing fiduciary functions, being
all officers assigned to the Trust, Trust and Investment Management or other
Fiduciary Department, Division, or other unit of the Bank, shall execute and
perform all actions desirable to carry out the fiduciary functions of the Bank,
and shall perform such other duties as may be assigned by the Board of
Directors, the Chief Executive Officer, or the Vice President in Charge of
Trusts, if any.
Section 12. Controller. The Controller shall be the chief accounting officer and
shall supervise systems and accounting records and shall be responsible for the
preparation of financial reports.
Section 13. Audit Director. The Audit Director shall have charge of auditing the
books, records and accounts of the Bank. He shall report directly to the Board
of Directors or a committee thereof.
Section 14. Assistant Officers. Each Assistant Officer shall assist in the
performance of the duties of the officer to whom he is assistant and shall
perform such duties in the absence of the officer. He shall perform such
additional duties as the Board of Directors, the Chief Executive Officer, or the
officer to whom he is assistant, may from time to time assign to him.
Section 15. Tenure of Office. The Chief Executive Officer, the Chairman, and the
President shall each hold office for the year for which the Board was elected
and until the appointment and qualification of his successor or until his
earlier death, resignation, disqualification or removal by the Board of
Directors. All other officers and employees shall hold office at the pleasure of
the appropriate appointing authority.
Section 16. Resignation. An officer may resign at any time by delivering written
notice to the Bank. A resignation is effective when the notice is given unless
the notice specifies a later effective date.
Article V. Fidelity Bonds
Section 1. Fidelity Bonds, for the faithful performance of their duties, shall
be carried on all officers and employees in such form and amounts as the Board
of Directors or Chief Executive Officer may require.
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<PAGE> 11
Article VI. General Powers of Officers
Section 1. The corporate seal of the Bank may be imprinted or affixed by any
process. The Secretary and any other officers authorized by resolution of the
Board of Directors shall have authority to affix and attest the corporate seal
of the Bank.
Section 2. The authority of officers and employees of this Bank to execute
documents and instruments on its behalf in cases not specifically provided for
in these By-Laws shall be as determined from time to time by the Board of
Directors, or, in the case of employees, by officers in accordance with
authority given them by the Board of Directors.
Section 3. Each of the Chairman of the Board, any Vice Chairman, the President,
any one of the Vice Presidents, the Cashier or the Secretary of this Bank is
hereby authorized to pledge assets of the Bank as security for the safekeeping
and prompt payment of deposits of public funds, or other funds, as required or
permitted by law. Such officers may also pledge assets of the Bank as may be
authorized from time to time by the Board of Directors;
Article VII. Stock Certificates
Section 1. Certificates of stock of the Bank shall be signed by the Chairman of
the Board, or a Vice Chairman, or the President, or a Vice President, and
countersigned by the Cashier or an Assistant Cashier, or by the Secretary or an
Assistant Secretary, and shall be sealed with the seal of the Bank. The seal may
be a facsimile. Where any such certificate is manually countersigned by two
authorized officers, or is manually countersigned by one authorized officer and
manually signed by a Registrar, the signature of the Chairman of the Board, or a
Vice Chairman, or the President, or Vice President upon such certificate may be
a facsimile. In case any such officer who has signed or countersigned, or whose
facsimile signature has been placed upon such certificate shall have ceased to
be an officer before such certificate is issued, it may be issued by the Bank
with the same effect as if such officer were still an officer at the time of
this issue.
Section 2. The shares of stock of the Bank shall be transferable only on its
books upon surrender of the stock certificate for such shares properly endorsed.
Section 3. Transfers of stock shall not be suspended preparatory to the
declaration of dividends, but dividends shall be paid to the shareholders in
whose name the stock is standing on the records of the Bank at the close of
business on such day subsequent to the date of declaration of the dividend as
the Board of Directors may designate.
Section 4. If a stock certificate shall be lost, stolen, or destroyed, the
shareholder may file with the Bank an affidavit stating the circumstances of the
loss, theft or destruction and may request the issuance of a new certificate. He
shall give to the Bank a bond which shall be in such sum, contain such terms and
provisions and have such surety or sureties as the Board of Directors may
direct. The Bank may thereupon issue a new certificate replacing the certificate
lost, stolen or destroyed.
Article VIII. General
Section 1. Exercise of Authority During Emergencies. The Board of Directors or
the Executive Committee may from time to time adopt resolutions authorizing
certain persons and entities to
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<PAGE> 12
exercise authority on behalf of this Bank in time of emergency, and in the time
of emergency any such resolutions will be applicable, notwithstanding any
provisions to the contrary contained in these By-Laws.
Section 2. Charitable Contributions. The Board of Directors may authorize
contributions to community funds, or to charitable, philanthropic, or benevolent
instrumentalities conducive to public welfare in such sums as the Board of
Directors may deem expedient and in the interest of the Bank.
Section 3. Fiscal Year. The fiscal year of the Bank shall be the calendar year.
Section 4. Amendments. These By-Laws may be altered, amended, added to or
repealed by a vote of a majority of the Board of Directors at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors called for that purpose.
Section 5. Notice; Waiver of Notice. Any notice required to be given to any
shareholder or Director may be given either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, or by facsimile to
his or her address or telephone number, as the case may be, appearing on the
books of the Bank, or supplied by him or her to the Bank for the purpose of
notice. If the notice is sent by mail or by telegraph, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office for transmission to such person. Each
notice shall specify the place, day, and hour of the meeting, and, in the case
of a special meeting, the general nature of the business to be transacted.
Unless otherwise provided by law, whenever any notice is required to be given to
any shareholder or Director under the provisions of these By-Laws or under the
provisions of the Articles of Association, a waiver thereof in writing, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, will be deemed equivalent to the given of such notice.
Except in the case of a special meeting of shareholders or Directors, neither
the business to be transacted nor the purpose of the meeting need by specified
in the waiver of notice of such meeting. Attendance of a person either in person
or by proxy, when permitted, will constitute a waiver of notice of such meeting,
except where such person attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting was not lawfully called
or convened.
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<PAGE> 13
EXHIBIT T-1-5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990, in connection
with the proposed issuance by Unifrax Investment Corp. (a Delaware Corporation)
of _____% Senior Notes due 2003, we hereby consent that reports of examination
by Federal, State, Territorial, or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By /s/Richard A. Ranil
--------------------------------------
Richard A. Ranii
Assistant Vice President
Dated: October 8, 1996
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<PAGE> 14
EXHIBIT T-1-6
SCHEDULE RC - BALANCE SHEET
FROM
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of
PNC BANK, NATIONAL ASSOCIATION
of PITTSBURGH in the state of PENNSYLVANIA
at the close of business on
June 30, 1996
filed in response to call made by
Comptroller of the Currency,
under title 12, United States Code, Section 161
Charter Number 540
Comptroller of the Currency Northeastern District
BALANCE SHEET
<TABLE>
<CAPTION>
Thousands
of Dollars
----------
ASSETS
<S> <C> <C>
Cash and balances due from depository institutions
Noninterest-bearing balances and currency and coin................................... $ 1,819,655
Interest-Bearing Balances............................................................ 30,158
Securities
Held-to-maturity securities.......................................................... 0
Available-for-sale securities........................................................ 8,510,878
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal funds sold................................................................... 1,476,675
Securities purchased under agreements to resell...................................... 0
Loans and lease financing receivables:
Loans and leases, net of unearned income $29,517,488
LESS: Allowance for loan and lease losses 605,444
-----------
Loans and leases, net of unearned income,
allowance and reserve............................................................ 28,912,044
Trading assets ........................................................................ 90,243
Premises and fixed assets (including capitalized leases)............................... 555,610
Other real estate owned ............................................................... 42,141
Investments in unconsolidated subsidiaries and
associated companies ............................................................... 12,811
Customers' liability to this bank on acceptances
outstanding......................................................................... 38,778
Intangible assets ..................................................................... 912,542
Other assets........................................................................... 842,546
------------
Total Assets........................................................................ $ 43,244,081
============
</TABLE>
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<PAGE> 15
LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
Deposits:
In domestic offices................................................................. $23,945,345
Noninterest-bearing $ 6,052,639
Interest-bearing 17,892,706
In foreign offices, Edge and Agreement subsidiaries,
and IBFs......................................................................... 468,898
Noninterest-bearing $ 2,331
Interest-bearing 466,567
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased.......................................................... 931,270
Securities sold under agreements to repurchase................................... 835,240
Demand notes issued to U.S. Treasury................................................... 2,351,411
Trading Liabilities.................................................................... 83,228
Other borrowed money
With original maturity of one year or less.......................................... 8,427,237
With original maturity of more than one year........................................ 1,464,373
Mortgage indebtedness and obligations under
capitalized leases.................................................................. 4,204
Bank's liability on acceptances executed and outstanding............................... 38,778
Subordinated notes and debentures ..................................................... 500,281
Other liabilities...................................................................... 657,218
------------
Total liabilities...................................................................... 39,707,483
</TABLE>
EQUITY CAPITAL
<TABLE>
<CAPTION>
<S> <C>
Common Stock........................................................................... 30,950
Surplus. . . .......................................................................... 1,532,086
Undivided profits and capital reserves................................................. 2,076,618
Net unrealized holding gains (losses) on
available-for-sale securities....................................................... (103,056)
Total equity capital................................................................... 3,536,598
------------
Total liabilities and equity capital................................................... $ 43,244,081
============
</TABLE>
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