<PAGE> 1
As filed with the Securities and Exchange Commission on September 26, 1996
Registration No. 333-10611
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 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>
<CAPTION>
<S> <C> <C>
DELAWARE 3299 34-1839043
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
ncorporation 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 agent for service)
Copies to:
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
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<PAGE> 2
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. / /
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<PAGE> 3
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> 4
PROSPECTUS SUBJECT TO COMPLETION, DATED ________, 1996
$100,000,000
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 (as defined) with Unifrax becoming the surviving corporation (the
"Company") and becoming liable for the Notes. The consummation of the Offering
is conditioned upon the concurrent consummation of the Recapitalization and
the transactions contemplated thereby. See "The Recapitalization."
Interest on the Notes will be payable semi-annually on each
_____________, commencing __________, 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
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<PAGE> 5
Credit Agreement (as defined). As of September 26, 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 (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 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 Company does
not intend to apply for listing of the Notes on any securities exchange. See
"Risk Factors--Absence of Prior Market for the Notes; Determination of Market
Price; Market Risk."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
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>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE
--------- ----------- -----------
COMPANY(3)
- ----------
<S> <C> <C> <C>
Per note 100% % %
========
Total $ $
<FN>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company 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 the Company, estimated at
$.
</TABLE>
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THE NOTES ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR SALE, WHEN,
AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT TO APPROVAL
OF CERTAIN LEGAL MATTERS BY COUNSEL. IT IS EXPECTED THAT DELIVERY OF THE NOTES
WILL BE MADE ON OR ABOUT, 1996 AT THE OFFICES OF BT SECURITIES CORPORATION, ONE
BANKERS TRUST PLAZA, NEW YORK, NEW YORK 10006.
BT SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC.
THE DATE OF THIS PROSPECTUS IS __________ , 1996.
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IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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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,
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<PAGE> 9
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.
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<PAGE> 10
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) 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.
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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.
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,
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<PAGE> 12
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
Strategy--Product and Health Safety Issues."
12
<PAGE> 13
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."
13
<PAGE> 14
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 distributor of refractory products. See "Certain Relationships
and Related Transactions--Relationship with Kirtland."
THE RECAPITALIZATION
The Offering is part of the Recapitalization which is being effected
pursuant to the Recapitalization Agreement dated as of June 9, 1996, as amended
(the "Recapitalization Agreement"), among Unifrax, Holding 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.
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<PAGE> 15
* 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--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.
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THE OFFERING
Issuer Investment Corp. will issue the Notes and will merge into
Unifrax in connection with the Recapitalization. After the
merger, Unifrax 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 ___ ,
and ____ , commencing ____ , 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
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<PAGE> 17
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--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."
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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> 19
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--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
and 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 and as of 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 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 and as of 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.
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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.
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".
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<PAGE> 22
<TABLE>
<CAPTION>
Year Ended December 31,
(DOLLARS IN THOUSANDS) 1991 1992 1993 1994 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $53,540 $64,565 $67,692 $76,246 $84,064
Cost of goods sold 27,620 33,099 34,153 37,590 40,630
------- ------- ------- ------- -------
Gross profit 25,920 31,466 33,539 38,656 43,434
Selling and distribution 9,462 10,370 9,932 10,688 11,579
Administration 5,701 5,212 5,415 6,279 6,189
Allocated corporate charges (b) 2,900 2,600 2,800 2,300 2,700
Research and development 2,106 2,455 2,247 2,272 2,450
Restructuring charges -- 480 155 -- --
------- ------- ------- ------- -------
Operating income 5,751 10,349 12,990 17,117 20,516
Interest expense -- -- -- -- --
Other income 541 555 549 591 932
------- ------- ------- ------- -------
Income before income taxes and accounting change 6,292 10,904 13,539 17,708 21,448
Provision for income taxes 2,511 4,356 5,611 7,256 8,743
------- ------- ------- ------- -------
Income before accounting change 3,781 6,548 7,928 10,452 12,705
Effect of accounting change -- -- (2,658)(c) -- --
------- ------- ------- ------- -------
Net Income $ 3,781$ 6,548 $ 5,270 $10,452 $12,705
======= ======= ======= ======= =======
OTHER DATA:
EBITDA (d) $ 9,515 $14,501 $17,510 $21,928 $25,749
Depreciation and amortization 3,223 3,597 3,971 4,220 4,301
Cash flows from operating activities NA 9,047 10,172 11,324 18,925
Capital expenditures 2,751 3,669 3,032 2,670 3,404
Ratio of EBITDA to interest expense(D) 1.83X
Ratio of earnings to fixed charges (e) 75.90x 113.41X 124.08X 166.50X 165.98X
BALANCE SHEET DATA (AT PERIOD END):
Working capital $11,103 $11,597 $13,583 $16,688 $14,763
Total assets 53,453 54,327 55,105 56,897 54,239
Long-term debt -- -- -- -- --
Total liabilities 15,414 15,888 18,634 18,943 18,815
Parent company investment/Stockholders' equity
(deficit)(f) 38,039 38,439 36,471 37,954 35,424
Six-Months Ended
June 30,
Pro Forma
Consoli-
Pro Forma Combined(a) Dated
(Dollars in Thousands) 1995 1995 1996 1996
- ---------------------- ---- ---- ---- ----
STATEMENT OF INCOME DATA:
Net sales $ 83,638 $43,036 $45,192 $45,121
Cost of goods sold 40,594 20,803 22,129 22,123
-------- ------- ------- -------
Gross profit 43,044 22,233 23,063 22,998
Selling and distribution 12,066 6,064 6,418 6,499
Administration 8,704 3,218 3,429 4,349
Allocated corporate charges (b) -- 1,350 356 --
Research and development 2,450 1,372 1,121 1,121
Restructuring charges -- -- -- --
-------- ------- ------- -------
Operating income 19,824 10,229 11,739 11,029
Interest expense (13,816) -- -- (6,859)
Other income 542 392 43 (46)
-------- ------- ------- -------
Income before income taxes and accounting change 6,550 10,621 11,782 4,124
Provision for income taxes 2,825 4,316 4,882 1,837
------- ------- ------- -------
Income before accounting change 3,725 6,305 6,900 2,287
Effect of accounting change -- -- -- --
-------- ------- ------- -------
Net Income $ 3,725 $ 6,305 $ 6,900 $ 2,287
======== ======= ======= =======
OTHER DATA:
EBITDA (d) $ 25,282 $12,715 $13,737 $13,246
Depreciation and amortization 4,916 2,094 1,955 2,263
Cash flows from operating activities 6,749 8,242
Capital expenditures 3,404 1,193 2,795 2,795
Ratio of EBITDA to interest expense(D) 1.93X
Ratio of earnings to fixed charges (e) 1.45X 169.59X 179.52X 1.57X
BALANCE SHEET DATA (AT PERIOD END):
Working capital $17,151 $15,526 $ 16,333
Total assets 56,668 58,067 83,119
Long-term debt -- -- 132,000
Total liabilities 19,136 20,788 146,591
Parent company investment/Stockholders' equity
(deficit)(f) 37,532 37,279 (63,472)
</TABLE>
22
<PAGE> 23
(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.
(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 it is a widely accepted financial
indicator of a company's ability to service debt. EBITDA should not be
considered in isolation from, as a substitute for or as being more
meaningful than net income, cash flows from operating 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 change in accounting principles plus fixed charges. Fixed charges
consist of interest expense which includes 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 asset 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.
23
<PAGE> 24
RISK FACTORS
Prospective purchasers of the Notes offered hereby 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 there have been no human diseases proven to be caused by exposure to
refractory ceramic fiber and the Company's 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. 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."
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<PAGE> 25
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 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 --
Contingencies", and "Business -- Health and 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 $64.3 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
25
<PAGE> 26
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, 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 of 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
26
<PAGE> 27
Agreement. See "Description of Notes--Certain Covenants" and
"Description of Credit Agreement and Other Indebtedness."
27
<PAGE> 28
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 Notes are effectively subordinated in right of payment to indebtedness under
the Credit Agreement, 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 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.
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, 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. However, pursuant to the Recapitalization
Agreement, BP has agreed to indemnify the Company as to these and other
28
<PAGE> 29
environmental matters. See "Certain Relationships and Related
Transactions--Relationship with BP and Its Subsidiaries--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 equityholder 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."
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
29
<PAGE> 30
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 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 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 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."
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, 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. 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.
30
<PAGE> 31
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 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
31
<PAGE> 32
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."
32
<PAGE> 33
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.
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 cancelled.
6. Unifrax shall borrow $25.0 million under the Credit Agreement.
7. Unifrax shall pay Standard and BPX the Redemption Cash.
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
33
<PAGE> 34
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--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.
34
<PAGE> 35
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--Non-compete
Agreement" for a description of the Non-compete Agreement to be provided
by BP to Holding.
</TABLE>
35
<PAGE> 36
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
as of June 30, 1996 and as adjusted to reflect the Recapitalization. This table
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
(Dollars in Thousands) Actual Pro Forma
- ---------------------- ------ ---------
<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 37,279 31,433
Accumulated deficit -- (94,905)
-------- --------
Total parent company investment/stockholders'
equity (deficit) 37,279 (63,472)
--------- --------
Total capitalization $ 37,279 $ 68,528
========= ========
<FN>
(a) The Credit Agreement will also include the $20 million revolving credit
facility which is anticipated to be unused at the consummation of the
Recapitalization. See "Description of Credit Agreement and Other
Indebtedness--Credit Agreement."
(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) this
investment, as adjusted for items to be retained by BP, 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, and (ii) as a result of the redemption and retirement of 80% of
the outstanding shares of common stock owned by BP in connection with the
Recapitalization, 80% of stockholders' equity will be eliminated, with the
remaining amount of the Recapitalization being recorded as an accumulated
deficit.
</TABLE>
36
<PAGE> 37
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 combined 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.
37
<PAGE> 38
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ -- $ --
Accounts receivable, net 15,235 -- 15,235
Inventories 9,290 -- 9,290
Deferred income taxes 2,483 307(a) 2,790
Prepaid expenses and other current
assets 433 -- 433
------- --------- --------
Total current assets 27,441 307 27,748
Property, plant and equipment, net 30,082 -- 30,082
Deferred income taxes -- 19,745(A) 19,745
Other assets 544 5,000(b) 5,544
------- --------- --------
$58,067 $ 25,052 $ 83,119
LIABILITIES, PARENT COMPANY INVESTMENT/
STOCKHOLDERS' EQUITY
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,
3,000,000 shares authorized, 20,000
issued and outstanding pro forma -- --(f) --
Parent company investment/Additional
paid-in capital 37,279 (5,846)(F) 31,433
Accumulated deficit -- (94,905)(F) (94,905)
37,279 (100,751) (63,472)
$58,067 $ 25,052 $ 83,119
</TABLE>
See accompanying notes.
38
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(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 $20,514) 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:
<TABLE>
<S> <C>
Credit Agreement $ 25,000
Notes 100,000
--------
125,000
Less current portion --
---------
$125,000
=========
</TABLE>
(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) this
investment, as adjusted for items to be retained by BP, 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, and (ii) as a result of the redemption and retirement of 80% of
the outstanding shares of common stock owned by BP in connection with the
Recapitalization, 80% of stockholders' equity will be eliminated, with the
remaining amount of the Recapitalization being recorded as an accumulated
deficit.
39
<PAGE> 40
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 2,515(b) 8,704
Allocated corporate charges 2,700 (2,700)(c) --
Research and development 2,450 -- 2,450
63,548 266 63,814
Operating income 20,516 (692) 19,824
Interest expense -- (13,816)(d) (13,816)
Other income, net 932 (390)(a) 542
------ ------ ------
Income before income taxes 21,448 (14,898) 6,550
Provision for income taxes 8,743 (5,918)(e) 2,825
------ ------ ------
Net income $12,705 $ (8,980) $ 3,725
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(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 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 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 615
vii) elimination of divestment related expenses (137)
viii) adjustment to interest costs for the postretirement
benefit obligations retained by BP (164)
-------
Total $ 2,515
=======
(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.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C> <C>
(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 11.25% per
annum 11,250
iii) BP Note at Prime (assuming Prime equals 8.25%) 578
-------
Total $13,816
=======
* 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.
</TABLE>
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%.
41
<PAGE> 42
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 22,129 (6)(a) 22,123
Selling and distribution 6,418 81(a) 6,499
Administration 3,429 920(b) 4,349
Allocated corporate charges 356 (356)(c) --
Research and development 1,121 -- 1,121
--------- ----------- --------
33,453 639 34,092
--------- ----------- --------
Operating income 11,739 (710) 11,029
========= =========== ========
Interest expense -- (6,859)(d) (6,859)
Other income (expense), net 43 (89)(a) (46)
--------- ----------- --------
Income before income taxes 11,782 (7,658) 4,124
========= =========== ========
Provision for income taxes 4,882 (3,045)(c) 1,837
--------- ----------- --------
Net income $ 6,900 $ (4,613) $ 2,287
========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Reflects the impact of the Saint-Gobain Sale (see
"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 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 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 308
vi) elimination of divestment related expenses (270)
vii) adjustment to interest costs for the postretirement
benefit obligations retained by BP (82)
------
Total $ 920
======
(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
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C>
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 11.25% per
annum 5,625
iii) BP Note at Prime (assuming Prime equals 8.25%) 289
------
Total $6,859
======
<FN>
* 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>
43
<PAGE> 44
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)
(DOLLARS IN THOUSANDS) 1991 1992 1993 1994 1995 1995 1996
- ---------------------- ---- ---- ---- ---- ---- ---- ----
<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 22,129
------- ------- ------- ------- ------- ------- -------
Gross profit 25,920 31,466 33,539 38,656 43,434 22,233 23,063
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 11,739
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 11,782
Provision for income taxes 2,511 4,356 5,611 7,256 8,743 4,316 4,882
Income before cumulative effect of
change in accounting principle 3,781 6,548 7,928 10,452 12,705 6,305 6,900
Cumulative effect of change in
accounting principle -- -- (2,658)(c) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income $ 3,781 $ 6,548 $ 5,270 $10,452 $12,705 $ 6,305 $ 6,900
OTHER DATA:
EBITDA(d) $ 9,515 $14,501 $17,510 $21,928 $25,749 $12,715 $13,737
Depreciation and amortization 3,223 3,597 3,971 4,220 4,301 2,094 1,955
Cash flows from operating activities(g) NA 9,047 10,172 11,324 18,925 6,749 8,242
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 179.52X
BALANCE SHEET DATA (AT PERIOD END):
Working capital $11,103 $11,597 $13,583 $16,688 $14,763 $17,151 $ 15,526
Total assets 53,453 54,327 55,105 56,897 54,239 56,668 58,067
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 37,279
</TABLE>
44
<PAGE> 45
(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 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 it is a widely accepted financial
indicator of a company's ability to service debt. EBITDA should not be
considered in isolation from, as a substitute for, or as being more
meaningful than net income, cash flows from operating 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 change in accounting principle plus fixed charges. Fixed charges
consist of interest expense which includes 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.
45
<PAGE> 46
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 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.
The growth rate in EBITDA 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.
46
<PAGE> 47
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 49.0
----- ----- ----- ----- -----
Gross profit 49.5 50.7 51.7 51.7 51.0
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 2.5
Restructuring charges 0.2 --. --. --. --.
----- ----- ----- ----- -----
Operating income 19.2 22.4 24.4 23.8 26.1
</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 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 $0.9 million, or 3.7%, from $22.2 million in
1995 to $23.1 million in 1996. This increase was the result of higher sales
volume. Gross profit margin decreased slightly from 51.7% in 1995 to 51.0% 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 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 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.
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.
47
<PAGE> 48
Operating income increased $1.5 million, or 14.8%, from $10.2 million
in 1995 to $11.7 million in 1996. Operating income as a percentage of net sales
increased from 23.8% in 1995 to 26.0% in 1996 as a result of the factors
discussed above.
EBITDA increased $1.0 million, or 8.0%, from $12.7 million in 1995 to
$13.7 million in 1996. On a percentage of net sales basis, EBITDA increased from
29.5% in 1995 to 30.4% 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 $13.0 million in 1996 due to lower receivables from the Carborundum overseas
units and higher trade payables and accruals in 1996.
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 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 development project and the
transfer of two Carborundum research and development projects to the Company.
Operating income increased $3.4 million, or 20.0%, from $17.1 million
in 1994 to $20.5 million in 1995. Operating income as a percentage of net sales
increased from 22.4% in 1994 to 24.4% in 1995 as a result of 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
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<PAGE> 49
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.
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 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 22.4% in 1994 as a result of 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.
49
<PAGE> 50
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."
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 $2.0-3.0 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> 51
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) 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
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<PAGE> 52
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 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.
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<PAGE> 53
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 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.
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 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 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.
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.
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<PAGE> 54
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 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.
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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,
(DOLLARS IN MILLIONS) 1991 1992 1993 1994 1995
- --------------------- ---- ---- ---- ---- ----
<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
except XPE outside the North American market until March 1, 2001 except XPE
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. Substantially all of the fiber consumed by the
automotive industry consists of porosity-controlled paper used in airbag
inflators and XPE gasket material used in catalytic converters and as insulation
material in engine heat shields. In 1995, approximately 11% of the Company's 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
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<PAGE> 56
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".
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<PAGE> 57
The Company also supplies XPE for use in automotive catalytic
converters. The Company expects continued growth in XPE sales resulting from the
continuing 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 market. SEPR has the right to take up a royalty-free, non-exclusive license
to manufacture and sell XPE 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 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
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<PAGE> 58
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 product line 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 will 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
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 percent 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.
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<PAGE> 59
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 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.
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<PAGE> 60
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 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, porosity-controlled
paper
Amherst, NY 42,000 Leased Woven and spun textiles
Sanborn, NY 10,000 Owned(a) Fibermax(R), high
temperature fiber
Niagara Falls, NY 33,000 Owned Headquarters, research
laboratory
<FN>
(a) 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--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
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<PAGE> 61
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. See
"The Business - Leadership in Product Health and Safety."
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 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.
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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(degree) 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 ("MSDS's"), 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 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
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<PAGE> 63
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 MMVF's. 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. 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 can be no
assurance that regulatory changes or changes in regulatory interpretation or
enforcement will not render compliance more difficult and costly.
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<PAGE> 64
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--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
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<PAGE> 65
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--Environmental Indemnity."
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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
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<PAGE> 67
in various engineering and manufacturing positions, including as Engineering
Manager since 1990 and worldwide engineering and purchasing manager since 1993.
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.
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<PAGE> 68
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
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND ----------------------------- OPTIONS/ COMPEN-
PRINCIPAL POSITION SALARY BONUS SARs(A) SATION(B)
- ------------------ ------ ----- ------- ---------
<S> <C> <C> <C> <C>
W. Kelly $155,514 $53,550 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 of BP. Each American Depositary Receipt is equal to twelve
ordinary shares of BP.
(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.
</TABLE>
68
<PAGE> 69
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 American Depositary Receipts of BP. Each American Depositary Receipt
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 American Depositary Receipts 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 American Depositary Receipts 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 and $144,961,
respectively. See footnote (d) above. These SARs terminate upon the
consummation of the Recapitalization.
</TABLE>
69
<PAGE> 70
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 American Depositary Receipts 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>
70
<PAGE> 71
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%.
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.
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<PAGE> 72
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 pensions. 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 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 and 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.
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<PAGE> 73
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 92,593 92.6%
2550 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094 (1)
William P. Kelly ____ ____%
Mark D. Roos ____ *
Paul J. Viola ____ *
Kevin J. O'Gorman ____ *
John E. Pilecki ____ *
All directors and executive
officers of the Company
as a group 7,407 7.4%
<FN>
* less than 5%
- ------------------
(1) 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.
</TABLE>
73
<PAGE> 74
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.
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<PAGE> 75
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.
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 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.
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. 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
75
<PAGE> 76
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.
Conversion Agreement. Pursuant to the Conversion Agreement, SEPR has an
obligation to die-cut rolls of XPE 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.
XPE License Agreement. Pursuant to the XPE 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. The Company may continue to sell XPE
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.
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<PAGE> 77
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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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
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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
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 , 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 has been 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 obligations of the Company, ranking
PARI PASSU in right of payment with all other senior 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 , . 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 __ and
__, commencing on __, 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 and unpaid interest, if any,
thereon 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
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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, if any, thereon 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.
As used in the preceding paragraph, a "PUBLIC EQUITY OFFERING"
means an underwritten public offering of Qualified Capital Stock of Holdings 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 Holdings, Holdings 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 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 and unpaid interest, if any, 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
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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 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
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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 Holdings 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, (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 (excluding, in the case of
clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to
the extent used to redeem the Notes).
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
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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 Holdings pursuant to and in accordance with the Tax
Sharing Agreement; (5) the making of payments by the Company to Holdings 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 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)
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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.
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
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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 (vii) 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.
Merger, Consolidation and Sale of Assets. The Company will
not, in a single transaction or series of related transactions, consolidate or
merge with
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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)
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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 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 ss.
314(a) of the TIA.
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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);
(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
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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 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,
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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.
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
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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
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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.
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
Management 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 -- Limitation 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."
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"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, an English
company, and any of its Subsidiaries.
"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 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.
"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
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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.
"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
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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 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;
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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 Credit Agreement dated as of ,
1996, between the Company and , 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.
"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.
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"Equity Interests" means warrants, options or other stock
purchase rights to acquire the Capital Stock of the Company or Holdings, as the
case may be (but excluding any debt security which is convertible into or
exchangeable for, Common Stock of the Company or Holdings, 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
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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.
"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
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(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."
"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 LP 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
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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;
(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;
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(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;
(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;
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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;
(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
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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.
"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 dated as of August , 1996 among the Company, Holding 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
104
<PAGE> 105
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."
"Tax Sharing Agreement" means the agreement between the
Company and Holdings 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 are 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.
105
<PAGE> 106
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and BT Securities and NationsBanc
Capital Markets, Inc. (together, the "Underwriters"), the Underwriters have
agreed to purchase from the Company, and the Company has agreed to sell to the
Underwriters, 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.
The Company does not intend to apply for listing of the Notes on a
national securities exchange. The Company 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.
The Company 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
the Company 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 p.l.c. and certain of
its affiliates in certain matters.
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.
106
<PAGE> 107
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.
107
<PAGE> 108
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-22 Combined Balance Sheets as of June
30, 1995 and 1996 (unaudited) F-23 Combined Statements of Income for the six
months ended June 30, 1995
and 1996 (unaudited) F-24
Combined Statement of Changes in Parent Company Investment for the
six months ended June 30, 1995 and 1996 (unaudited) F-25
Combined Statements of Cash Flows for the six months ended June 30,
1995 and 1996 (unaudited) F-26
Notes to Interim Combined Financial Statements (unaudited) F-27
</TABLE>
108
<PAGE> 109
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
109
<PAGE> 110
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.
110
<PAGE> 111
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 p.l.c. ("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.
111
<PAGE> 112
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
112
<PAGE> 113
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 24,567
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.
113
<PAGE> 114
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.
114
<PAGE> 115
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.
115
<PAGE> 116
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.
116
<PAGE> 117
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 p.l.c.
("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. In May 1995, BP
entered into an agreement under the terms of which it agreed to sell principally
all continuing businesses of Carborundum, 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, including Carborundum's ceramic fiber
operations located outside of North America.
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
117
<PAGE> 118
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 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. 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.
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 Carborundum, excluding the Division, but including
ceramic fiber businesses located outside of North America.
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.
118
<PAGE> 119
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 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
119
<PAGE> 120
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 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 and
research and development 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.
120
<PAGE> 121
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.
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.
121
<PAGE> 122
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' 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.
122
<PAGE> 123
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
Other 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.
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.
123
<PAGE> 124
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.
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>
124
<PAGE> 125
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>
125
<PAGE> 126
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
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>
126
<PAGE> 127
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.
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).
127
<PAGE> 128
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, or to be
contributing to, the existence of the contamination. BP American 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 responsibility 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. No reserves have been
established in the Divisions' balance sheet.
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.
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
128
<PAGE> 129
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>
129
<PAGE> 130
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
130
<PAGE> 131
UNIFRAX CORPORATION, XPE VERTRIEBS GMBH
AND NAF BRASIL LTDA.
COMBINED BALANCED 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 9,290
Deferred income taxes 2,626 2,483
Prepaid expenses and other current assets 196 433
Total current assets 27,263 27,441
Property, plant and equipment, net 29,156 30,082
Other assets 249 544
$56,668 $58,067
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 37,279
$56,668 $58,067
</TABLE>
See independent accountants' review report and accompanying notes.
131
<PAGE> 132
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 22,129
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 33,453
Operating income 10,229 11,739
Other income (expense):
Royalty income, net of related expenses 423 264
Miscellaneous (31) (221)
392 43
Income before income taxes 10,621 11,782
====== ======
Provision for income taxes 4,316 4,882
Net income $ 6,305 $ 6,900
</TABLE>
See independent accountants' review report and accompanying notes.
132
<PAGE> 133
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 6,900
Net change in parent company advances (6,127) (5,045)
Balance - end of period $37,532 $ 37,279
</TABLE>
See independent accountants' review report and accompanying notes.
133
<PAGE> 134
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
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 6,305 $ 6,900
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,094 1,955
Provision for deferred income taxes (11) (196)
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) (1,589)
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 8,242
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) (5,230)
Cash used in financing activities (6,858) (5,230)
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.
134
<PAGE> 135
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
135
<PAGE> 136
separately reported equity other than an amount equal to its net assets
captioned as "parent company investment."
See independent accountants' review report.
136
<PAGE> 137
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 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>
(DOLLARS IN THOUSANDS) 1995 1996
---- ----
<S> <C> <C>
Raw material and supplies $1,382 $1,523
In-process 1,600 1,205
Finished product 4,650 6,009
7,632 8,737
Adjustment to LIFO cost 665 553
------ ------
$8,297 $9,290
====== ======
</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>
(DOLLARS IN THOUSANDS) 1995 1996
---- ----
<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
137
<PAGE> 138
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 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
indemnity 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, or to be
contributing to, the existence of the contamination. BP American 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 responsibility 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. No reserves have been
established in the Divisions' balance sheet.
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
138
<PAGE> 139
the Company, the ultimate liability, if any, resulting from such matters will
not have a material adverse effect on the Company's financial position.
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 11,739 (188) 11,551
====== ======
Income before income taxes 11,782 (277) 10,978
====== ======
Net income 6,900 (163) 6,737
===== =====
</TABLE>
139
<PAGE> 140
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 UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY 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
PAGE
Prospectus Summary....................................................3
Risk Factors.........................................................13
The Recapitalization.................................................20
Use of Proceeds......................................................21
Capitalization.......................................................22
Pro Forma Financial Data.............................................23
Selected Historical Financial Data...................................30
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................32
Business.............................................................39
Management...........................................................55
Principal Stockholders...............................................64
Certain Relationships and Related Transactions.......................65
Description of Credit Agreement and Other Indebtedness...............69
Description of Notes.................................................70
Underwriting........................................................108
Legal Matters.......................................................109
Experts.............................................................109
Available Information...............................................109
Index to Financial Statements.......................................F-1
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.
140
<PAGE> 141
PROSPECTUS
$100,000,000
UNIFRAX INVESTMENT CORP.
% SENIOR NOTES DUE 2003
BT SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
, 1996
141
<PAGE> 142
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 *
Legal fees and expenses *
Accounting fees and expenses *
Blue sky fees and expenses *
Trustee fees and expenses *
Miscellaneous *
-------
TOTAL $
=======
<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
142
<PAGE> 143
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.
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.
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 Credit Agreement between the Registrant and the
Lenders to be named therein
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
p.l.c., its affiliates, and the Registrant 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 Registrant 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 Registrant
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 Registrant and Societe
Europeenne des Produits Refractaires (portions of this Exhibit
have been omitted
143
<PAGE> 144
and will be filed separately with the Commission pursuant to
a request for confidential treatment)
10.10*** Trademark License and Consent Agreement between the Registrant
and Societe Europeenne des Produits Refractaires
10.11*** Conversion Agreement between the Registrant 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 License Agreement between the Registrant and Societe
Europeennedes 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
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
* Previously filed
** To be filed by amendment
*** 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.
144
<PAGE> 145
(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.
145
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 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 September 26, 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. 1 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
September 26, 1996
William P. Kelly Executive Officer (Principal
Executive Officer)
/s/ Mark D. Roos Treasurer (Principal Financial
September 26, 1996
Mark D. Roos Officer and Principal Accounting
Officer)
</TABLE>
148
<PAGE> 147
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
149
<PAGE> 148
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
NORTH AMERICAN FIBERS DIVISION OF
UNIFRAX CORPORATION (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
DESCRIPTION OF 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>
150
<PAGE> 149
EXHIBIT INDEX
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 Credit Agreement between the Registrant and the
Lenders to be named therein
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 p.l.c., its affiliates, and the Registrant 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 Registrant
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
Registrant 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 Registrant 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 Registrant and
Societe Europeenne des Produits Refractaires
146
<PAGE> 150
10.11*** Conversion Agreement between the Registrant 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 License Agreement between the Registrant 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
* Previously filed
** To be filed by amendment
*** 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)
147
<PAGE> 1
EXHIBIT 2.1
UNIFRAX CORPORATION
RECAPITALIZATION AGREEMENT
<PAGE> 2
Index to Stock Purchase Agreement
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
1. Recapitalization 2
2. Purchase Price 3
3. Adjustment to Initial Payment 4
4. Closing 7
5. Seller's General Representations and Warranties 10
6. Environmental 21
7. Employees and Benefits 24
8. Disclaimer of Implied Warranties 30
9. Buyer's Representations and Warranties 30
10. Brokerage/Expenses 31
11. Taxes 32
12. Obligations Pending the Closing Date 35
13. Non-Competition and SEPR Agreements 38
14. Indemnification 39
15. Buyer's Obligation to Close 48
16. Seller's Obligation to Close 49
17. Records and Cooperation 50
18. Termination Rights 50
19. Notices 52
20. Governing Law 52
</TABLE>
i
<PAGE> 3
Index to Stock Purchase Agreement
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
21. General 52
22. Dispute Resolution 53
</TABLE>
ii
<PAGE> 4
Index to Schedules
<TABLE>
<CAPTION>
LETTER SUBJECT SECTION REFERENCES
<S> <C> <C>
A. Purchase Price Allocation 11.F.i)
B. Accounting Principles 3., 5.F, 5.G, 5.S.
C. Exchange Rates 3.
D. March 31 Financial Statements 5.F., 5.G.
E. Discontinued Operations 5.G., 14.B.
F. Disclosure Schedule 5.H., 5.M., 5.I.,
5.U., 5.V., 6.B., 6.C.
G. List of Owned Real Property and 5.I.
Leased Real Property
H. Material Agreements 5.J.,
I. Intellectual Property 5.J., 5.K.
J. Transferred Litigation 5.L., 5.V.
K. Personal Property 5.N.
L. Personal Property Leases 5.O.
M. Certain Capital Expenditure Commitments 5.P., 12.B.
N. Labor Matters 5.R., 5.V., 7.A.vi)
O. Initial Payment Schedule 2.
P. Benefit Plans (Parts A & B) 7.A., 7.B.
P.-1 Assumed Plans 7.C.
P.-2 Actuarial Assumptions 7.C.
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Q. 1996 Unifrax Involuntary 7.C.
Separation Program
R. List of Project Employees Covered 7.C.
by the NAF Divestment
Management Separation Program
S. Product Stewardship Program 14.B.
Z. Schedule 14.B.ii) provisions 14.B.
</TABLE>
iv
<PAGE> 6
Index to Exhibits
<TABLE>
<CAPTION>
NUMBER SUBJECT SECTION
<S> <C> <C>
1. Form of Notarial Deed for XPE GmbH 4.B.vii)
2.A. Certificate of Merger 1.H., 4.C.iv)
2.B. Bylaws 1.J.
3. Noncompetition Agreement 13
4. Promissory Note 1.E.
5. Legal Opinion 4.B.ix)
6. Stockholder's Agreement 4.D.ii)
7. Sanborn Lease 1.H.; 4.D.iii)
</TABLE>
v
<PAGE> 7
Stock Purchase Agreement
Index to Defined Terms
<TABLE>
<CAPTION>
TERM LOCATION OF DEFINITION
- ---------------------------------------------------------------------
<S> <C>
Active U.S. Employees 7.C.i)
Agreement Introduction
Assumed Plan(s) 7.C.ii)
Benefit Plans 7.A.i)
BP 13.
BPA Introduction
BPIL 1.A.
BP Group 14.A.
BPX Introduction
Buyer Introduction
Buyer Group 14.B.
CAP 7.C.ii)
Certificate of Merger 1.J.
CERCLA 6.A.iii)
Closing 4.
Closing Date 4.A.
Closing Net Working Capital 3.A.i)
Closing Period 11.E. ii)
Code 5.T.ii)
Confidentiality Agreement 18.C.ii)
Constituent Documents 5.C.
Consultants' Reports 6.C.
Contest 11.E. i)
Covenant Payment 1.F.
December 31, Financial Statements 5.F.
DeMinimus Amount 14.I.
Delaware Secretary of State 1.J.
DGCL 1.J.
Disagreement Notice 3.B.v)
Discontinued Operations 14.B.i)
Dissenting Shares 1.J.
Effective Time 1.J.
Encumbrances 5.D.
Environmental Compliance Action 6.A.i)
Environmental Laws 6.A.iii)
Environmental Losses 6.A.ii)
Environmental Permit 6.Aiv)
ERISA 7.A.i)a)
Facilities 6.A.v)
</TABLE>
vi
<PAGE> 8
Stock Purchase Agreement
Index to Defined Terms
<TABLE>
<CAPTION>
TERM LOCATION OF DEFINITION
- ---------------------------------------------------------------------
<S> <C>
German Plans 7.B.
Hazardous Substance 6.A.vi)
H-S-R Act 12.H.
Indemnify 14.A.
Indemnifying Party 14.E.i)
Indemnified Party 14.E.i)
Indemnity Payment 14.E.vi)
Independent Accountants 3.C.ii)
Initial Payment 2.
Intellectual Property 5.K.i)
Investment Introduction
Joint Matters 14.B.ii)
Laws 5.M.
Lien 5.I.iv)
Loss 14.A.
Losses 14.A.
March 31, Financial Statements 5.F.
Material Agreements 5.J.
Material Adverse Effect 5.A.iii)
Merger Introduction
Mirror Plans 7.C.ii)
PBGC 7.A.vii)b)
Pension Plans 7.A.i)b)
Permitted Exceptions 5.I.iii)
Personal Property 5.N.
Plan of Merger 1.H.
Post-Closing Statement 3.B.i)
Post-Sale Year 11.E.iii)
Pre-Closing Date period 11.A.iii)
Pre-Closing Litigation 14.B.ii)
Pre-Closing Matters 14.B.ii)
Pre-Sale Year 11.E.i)
Purchase Price 2.
RCRA 6.A.iii)
Real Property 5.I.v)
Redeemed Shares Introduction
Redemption Cash 1.E.
Redemption Note 1.E.
Release 6.A.vii)
</TABLE>
vii
<PAGE> 9
Stock Purchase Agreement
Index to Defined Terms
<TABLE>
<CAPTION>
TERM LOCATION OF DEFINITION
- ---------------------------------------------------------------------
<S> <C>
Remedial Action 6.A.viii)
Sanborn Property 5.Z.
Schedule Amendments 12.E.
Seller Group 2.
Seller Introduction
Seller's knowledge 5.
Seller's Punitive Damages 14.B.ii)
SEPR 13.
Shares 1.G.
Standard Introduction
Starting Net Working Capital 3.A.ii)
Surviving Corporation 1.J.
Taxes 5.T.i)
338(h)(10) Election 11.A.i)
Transfer Amount 7.C.ii)
Unifrax Introduction
Unifrax Group 2.
Unifrax Payment 1.
U.S. Employees 7.A.i)
XPE GmbH Introduction
XPE GmbH Shares 1.A.
XPE Ltda. Introduction
XPE Ltda. Shares 1.C.
</TABLE>
viii
<PAGE> 10
RECAPITALIZATION AGREEMENT
This Recapitalization Agreement ("Agreement") effective as of the 9th
day of June, 1996 among BP America Inc., a Delaware corporation ("BPA"); The
Standard Oil Company, an Ohio corporation ("Standard"); and BP Exploration
(Alaska) Inc., a Delaware corporation ("BPX") (BPA, Standard and BPX are
referred to collectively as "Seller"); Unifrax Corporation, a Delaware
corporation ("Unifrax"); Unifrax Holding Co., a Delaware corporation ("Buyer")
and Unifrax Investment Corp., a Delaware corporation ("Investment").
WHEREAS,
A. BPA is the parent of Standard;
B. Unifrax is a subsidiary of BPX and Standard;
C. XPE Vertriebs GmbH, a limited liability company incorporated in
Germany, ("XPE GmbH") will become a wholly-owned subsidiary of
Unifrax prior to Closing;
D. NAF Brasil Ltda., a company incorporated in Brazil, ("XPE Ltda.")
will become a subsidiary of Unifrax prior to Closing;
E. Unifrax intends to redeem at Closing the one (1) share held by
Standard and seventy-nine (79) shares of the ninety-nine (99)
shares held by BPX (collectively the "Redeemed Shares").
F. Investment is a wholly-owned subsidiary of Buyer.
G. Seller and Buyer desire to recapitalize Unifrax such that after
the Closing, Buyer and BPX will own 90% and 10%, respectively, of
the issued and outstanding shares of Unifrax.
H. The recapitalization of Unifrax will be accomplished by Seller
selling to Buyer, and Buyer purchasing from Seller, 90% of the
issued and outstanding shares of Unifrax after the redemption,
and immediately after such purchase merging Investment with and
into Unifrax, with Unifrax as the surviving corporation (the
"Merger").
NOW THEREFORE, in consideration of the mutual promises made herein and
of the mutual benefits to be derived therefrom, the parties hereto agree as
follows:
1. RECAPITALIZATION.
On the Closing Date, as defined in Section 4, and subject to the terms
and conditions set forth in this Agreement, the following transactions
shall occur:
1
<PAGE> 11
A. BP International Limited ("BPIL") will sell, assign, transfer and
deliver to Unifrax one (1) quota in the nominal amount of Six
Hundred Thousand Deutsche Marks (DM 600,000) of XPE GmbH (the
"XPE GmbH Shares");
B. BPIL shall cause any loans or intercompany accounts between XPE
GmbH and a member of the Seller Group to be transferred to
Unifrax;
C. BPIL and Standard will sell, assign, transfer and deliver to
Unifrax and Buyer, as Buyer will specify, four hundred ninety-one
thousand six hundred and one (491,601) Quotas of XPE Ltda. (the
"XPE Ltda. Shares");
D. BPIL and Standard shall cause any loans or intercompany accounts
between XPE Ltda. and a member of the Seller Group to be
transferred to Unifrax;
E. Unifrax will redeem, and BPX and Standard will sell and deliver
the Redeemed Shares in exchange for the promise of Unifrax to pay
and deliver the sum of (i) an amount determined by Buyer and
provided to Seller in writing not later than five (5) business
days prior to Closing (the "Redemption Cash") and (ii) a
promissory note in the principal amount of Seven Million Dollars
($7,000,000) substantially in the form of Exhibit 4 attached
hereto (the "Redemption Note"). The Redemption Cash shall be an
amount equal to or greater than One Hundred Fifteen Million
Dollars ($115,000,000);
F. Buyer will pay BP Ten Million Dollars ($10,000,000) as
consideration for the Noncompetition Agreement (referred to in
Section 13) (the "Covenant Payment"); and
G. In exchange for the amount of the Initial Payment determined in
accordance with Section 2, BPX will sell, assign, transfer and
deliver to Buyer eighteen (18) shares of common stock, par value
One Dollar ($1) each, of Unifrax (the "Shares").
H. Investment shall be merged with and into Unifrax pursuant to the
Certificate of Merger attached hereto as Exhibit 2.A., with
Unifrax being the surviving corporation. All outstanding shares
of Unifrax held by BPX shall be converted into Two Thousand
(2,000) shares of common stock, par value One Dollar ($1.00)
each, and all of the outstanding shares of Unifrax held by Buyer
shall be converted into Eighteen Thousand (18,000) shares of
common stock, par value One Dollar ($1.00) each, of Unifrax.
I. Unifrax will deliver the Redemption Cash to BPX and Standard and
the Redemption Shares shall be cancelled.
J. The merger of Investment into Unifrax shall occur in accordance
with the provisions of the General Corporation Law of the State
of Delaware (the
2
<PAGE> 12
"DGCL"), at the Closing Investment shall be merged with and into
Unifrax. Unifrax, in its capacity as the corporation surviving
the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation". The bylaws of the Surviving Corporation
shall be in substantially the form attached hereto as Exhibit
2.B.
The Merger shall be consummated by filing with the Secretary of
State of the State of Delaware (the "Delaware Secretary of
State") a certificate of merger (the "Certificate of Merger") in
substantially the form attached hereto as Exhibit 2.A. The
Merger shall become effective (the "Effective Time") when the
Certificate of Merger has been filed with the Delaware Secretary
of State.
Notwithstanding anything in the Agreement to the contrary,
outstanding Shares which are held by shareholders who shall have
effectively dissented from the Merger and perfected their
appraisal rights in accordance with the provisions of Section 262
of the DGCL (the "Dissenting Shares"), shall not be converted
into or be exchangeable for the right to receive the
consideration described in Section 2, but the holders thereof
shall be entitled to payment from the Surviving Corporation of
the appraised value of such shares in accordance with the
provisions of Section 262 of the DGCL; provided, however, that if
any such holder shall have failed to perfect such appraisal
rights, its outstanding Shares shall thereupon be converted into
and exchangeable for, at the Effective Time, its pro rata share
of the consideration described in Section 2, as determined and
paid in the manner set forth in this Agreement, without any
interest thereon.
The Redemption Cash, the Redemption Note, and the Covenant Payment are
sometimes hereafter referred to collectively as the "Unifrax Payment."
2. PURCHASE PRICE.
In consideration for the sale of the Shares the receipt of the
Noncompetition Agreement (referred to in Section 13) and the settlement
of all loans and intercompany accounts referred to in Section 3.A.(iv)),
between the Seller, their parents, subsidiaries and affiliates (the
"Seller Group") and Unifrax, XPE GmbH and XPE Ltda. (the "Unifrax
Group"), Buyer shall on the Closing Date pay to Seller in immediately
available funds, by wire transfer to the bank account(s) of the Seller
identified by Seller to Buyer in writing not later than five (5)
business days prior to the Closing, the amount under the heading
"Initial Payment" on Schedule O corresponding to the Redemption Cash,
subject to post-closing adjustment as provided in Section 3 below (the
Initial Payment together with the Redemption Note, the "Purchase
Price").
3
<PAGE> 13
3. ADJUSTMENT TO INITIAL PAYMENT.
A. Closing Net Working Capital
i) The Initial Payment shall be adjusted downwards, but not
upwards, on a dollar-for-dollar basis if Starting Net
Working Capital exceeds Closing Net Working Capital.
"Closing Net Working Capital" means current assets minus
current liabilities of the Unifrax Group, (excluding
current assets and current liabilities of Investment) as
of the Closing Date determined:
(a) except as set forth in Schedule B, in accordance
with United States generally accepted accounting
principles consistently applied with those
accounting principles used in the preparation of
the December 31, Financial Statements;
(b) by including (i) the following current asset
accounts (1) "Cash" (including deposits-in-transit,
outstanding checks and marketable securities), (2)
"Accounts receivable, trade less allowance," (3)
"Inventories" and (4) "Prepaid expenses and other
current assets" and (ii) the following current
liability accounts: (1) "Accounts payable" and (2)
"Accrued expenses"; but excluding (iii) the
following (1) intercompany accounts and notes
receivable and payable with the Seller Group, (2)
income taxes both current and deferred, (3) cash
proceeds provided to Unifrax on the Closing Date in
connection with the transactions contemplated by
this Agreement; and (4) accrued expenses incurred
in connection with the transactions contemplated by
this Agreement; and
(c) translating current assets and current liabilities
recorded in currencies other than United States
Dollars into United States Dollars using the
applicable exchange rates listed on Schedule C.
ii) "Starting Net Working Capital" means an amount equal to
Twelve Million Six Hundred Sixty Three Thousand Dollars
($12,663,000.00).
iii) The amount included in Closing Net Working Capital for
bank accounts owned by the Unifrax Group, as either a
current asset or as a current liability as appropriate on
an individual account basis, shall represent the Closing
Date book balance for such accounts.
iv) The intercompany debts owed by the Unifrax Group to the
Seller Group, which at Closing will be denominated in
United States Dollars,
4
<PAGE> 14
will be settled on the Closing Date as part of the Initial
Payment which shall not increase or decrease the Initial
Payment or the Purchase Price. The settlement of the
intercompany debts as part of the Initial Payment shall,
without the necessity of any other action on the part of
Seller, be deemed to be a discharge and full payment of
such intercompany debts. Settlement of the intercompany
debt owed by the Unifrax Group to the Seller Group will
not increase or decrease the Initial Payment or the
Purchase Price.
B. Post-Closing Statement
i) Within sixty (60) calendar days of the Closing Date,
Seller shall prepare and deliver to Buyer a statement (the
"Post- Closing Statement"), showing in reasonable detail
Seller's calculation of the Closing Net Working Capital
(including the detail for each line item on the Post
Closing Statement) , which calculation shall be performed
in conformity with the provisions of Section 3.A above.
ii) Buyer shall, at no charge to Seller, cause the appropriate
financial, accounting and management employees of the
Unifrax Group to fully cooperate with Seller and their
representatives in the preparation of the Post-Closing
Statement. Such cooperation shall include, but is not
limited to, providing the Seller in a timely manner with
accurate information and data as reasonably requested for
the preparation of the Post-Closing Statement.
iii) The Unifrax Group shall in the normal course of business
conduct physical inventories of all inventories as of the
Closing Date and the Post-Closing Statement shall include
the results thereof.
iv) Seller and their representatives and Buyer and their
representatives shall be entitled to observe all physical
inventories that are conducted in connection with the
preparation of the Post-Closing Statement and to inspect
all of the work papers, schedules and other supporting
papers relating to the preparation of the Post-Closing
Statement during the period of its preparation. Buyer and
their representatives shall also be entitled to consult
with Seller and their representatives regarding the
methods used in the calculations in the Post-Closing
Statement.
v) If Buyer disagrees with the Post-Closing Statement, it
shall, within thirty (30) calendar days of receipt,
deliver to Seller a notice ("Disagreement Notice"),
setting forth in reasonable detail those items or amounts
in the Post-Closing Statement as to which Buyer disagrees
and the reason for such disagreement. Buyer shall be
deemed to agree with all items and amounts in the
Post-Closing Statement other than
5
<PAGE> 15
those specified in the Disagreement Notice. If Buyer does
not file a Disagreement Notice with Seller within thirty
(30) calendar days of receipt of the Post-Closing
Statement, the Post-Closing Statement shall become final
and binding.
C. Expert Determination.
i) If a Disagreement Notice is delivered pursuant to Section
3.B, the parties shall, during the twenty (20) calendar
days following such delivery, use reasonable efforts to
reach agreement on the disputed items or amounts in order
to determine the Closing Net Working Capital, which shall
not be more favorable to Seller than reflected in the
Post-Closing Statement (i.e. Seller cannot object to its
Post-Closing Statement) nor more favorable to Buyer than
shown in the calculations delivered by Buyer in the
Disagreement Notice.
ii) If the parties cannot agree, this Agreement and the
disputed items and amounts will be submitted to
independent nationally recognized accountants mutually
agreeable to Buyer and Seller who do not have material
financial relations to either Buyer or Seller (the
"Independent Accountants") for determination of the
Closing Net Working Capital in accordance with the
provisions of this Section 3 including, but not limited
to, the application of the accounting principles as set
forth on Schedule B and using the exchange rates listed on
or determined pursuant to Schedule C.
iii) In making such determination, the Independent Accountants
shall consider only those items or amounts in the
Post-Closing Statement as to which Buyer has disagreed,
and Seller and Buyer may voluntarily and shall if
requested by the Independent Accountants furnish to the
Independent Accountants such written statements, work
papers and position papers in support of their respective
positions.
iv) The Independent Accountants shall deliver to Seller and
Buyer, as promptly as practicable, a written report
setting forth their determination of the Closing Net
Working Capital, no line item of which shall be more
favorable to Seller than as reflected in the Post-Closing
Statement nor more favorable to Buyer than shown in the
calculations delivered by Buyer in the Disagreement
Notice. The determination by the Independent Accountants
of the Closing Net Working Capital shall be final,
conclusive and binding upon the parties, and shall not be
subject to appeal to any court or tribunal.
v) Each party will bear its own expenses in connection with
the Post-Closing Statement, the Disagreement Notice, if
any, and the submission
6
<PAGE> 16
to the Independent Accountants, except that the
Independent Accountants' fees and expenses will be borne
by the parties in the same ratio as to the difference
between Closing Net Working Capital shown in the
Post-Closing Statement (in the case of Seller) and the
Disagreement Notice (in the case of Buyer) and Closing Net
Working Capital shown on the report of the Independent
Accountants pursuant to this Section 3.
D. Standards. The Independent Accountants shall not render any
determination on matters which involve taking evidence from non-
accounting experts, nor shall the Independent Accountants
determine questions of law. The Independent Accountants shall
not be entitled to create or establish new contingency reserve
liability accounts, for any reason nor change or modify in any
respect the principles and practices as set forth in this Section
3; provided, however, that nothing shall prohibit the Independent
Accountants from changing or modifying existing contingency
reserves in accordance with this Section 3 and Schedule B. The
Independent Accountants shall make their determination as an
expert notwithstanding the failure of any party to provide the
Independent Accountants with comfort letters or management
representation letters.
E. Final Payment. Within five (5) business days of the
determination of the final Closing Net Working Capital pursuant
to this Section 3 Seller will pay Buyer a sum of money equal to
the excess if any of Starting Net Working Capital over final
Closing Net Working Capital on a dollar for dollar basis in
immediately available funds, plus interest at the prime rate
established by Morgan Guaranty Trust Company from time to time
plus 2 percent (2%) per annum from the Closing Date until a date
which is thirty (30) days after determination of the final
Closing Net Working Capital, and which thereafter increases, on a
cumulative basis, by an additional one percent (1%) per annum per
month, or part thereof, until the date the payment is made.
F. Access. From the Closing Date until the final determination of
the Closing Net Working Capital, the Seller, the Buyer, and their
respective representatives, will have reasonable access to the
books, records and accounts of the Unifrax Group and their
employees in order to assist in such determinations.
4. CLOSING. Subject to the appropriate satisfaction or waiver of the
conditions set forth in Sections 15 and 16, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take
place as follows:
A. The Closing shall occur at the offices of Baker & Hostetler, 3200
National City Center, 1900 East 9th Street, Cleveland, Ohio
44114-3485, at 10 a.m. local time (to be effective as of the
close of business for each entity in the Unifrax
7
<PAGE> 17
Group) on a date which is the third business day after all of the
conditions set forth in Sections 15 or 16 are satisfied or waived
(the "Closing Date"):
B. Seller's Documents. Seller shall deliver the following to Buyer
on the Closing Date:
i) certificate(s) representing all of the Shares accompanied
by stock power(s) duly endorsed in blank;
ii) evidence that the transfer of the XPE Ltda. Shares was
accomplished by means of an amendment to XPE Ltda.'s
Articles Of Organization to substitute Unifrax and Buyer
for BPIL and Standard as the quota-holders;
iii) a copy of the Certificate of Incorporation as amended, of
Unifrax certified by the Secretary of State of Delaware
and its By-Laws certified by Unifrax's corporate secretary
and a copy of the extract for the Register Of Commerce
certifying the existence of XPE GmbH;
iv) a certified copy of the resolutions adopted by each of the
Boards of Directors of BPA, Standard, Unifrax and BPX
approving and authorizing the transactions contemplated by
this Agreement including, without limitation, the Merger;
v) a current short form certificate of good standing for
Unifrax;
vi) the resignations, effective as of the Closing Date, of all
the directors (or managers in the case of XPE GmbH) who
are employed in the Seller Group who are not employees of
the Unifrax Group;
vii) a notarial deed to be executed before a notary in
Switzerland or Germany for the shares of XPE GmbH
substantially in the form attached hereto as Exhibit 1;
viii) evidence that the relevant members of the Seller Group
have assigned to Unifrax all their rights to or under
loans or intercompany balances between either XPE Ltda. or
XPE GmbH, on the one hand, and any member of the Seller
Group, on the other; and
ix) an opinion of counsel substantially in the form attached
as Exhibit 5; and
x) a written action of the stockholders of Unifrax approving
the Merger, executed by BPX.
8
<PAGE> 18
C. Buyer Payment and Documents. Buyer shall deliver or cause
Unifrax to deliver to Seller or BP on the Closing Date the
following:
i) the Initial Payment, the Covenant Payment, the Redemption
Cash, and the Redemption Note;
ii) a certified copy of the resolutions adopted by the Board
of Directors of Buyer and Unifrax or other appropriate
documents approving and authorizing the relevant
transactions contemplated by this Agreement and any
associated borrowings; and
iii) a current short form certificate of good standing (or
other applicable form) for Buyer from Delaware; and
iv) an executed Certificate of Merger in substantially the
form and in accordance with the substance of Exhibit 2.A.
D. Other Agreements. Buyer, Seller and Unifrax, as applicable shall
execute and deliver (or cause to be executed and delivered) to
one another on the Closing Date:
i) the Noncompetition Agreement referenced in Section 13.
ii) the Stockholders Agreement in substantially the form and
substance attached hereto as Exhibit 6; and
iii) the lease of the real property located in Sanborn, New
York in substantially the form and in accordance with the
substance of Exhibit 7.
E. Simultaneous Transactions. All of the transactions identified in
Section 2 and this Section 4 shall be deemed to occur
simultaneously, and none shall be deemed completed until all are
completed.
F. Further Assurances. After the Closing, each party hereto shall
from time to time, at the request of the other party and without
further cost or expense to such other party, execute and deliver
such other instruments or take such other actions as such other
party may reasonably request in order to more effectively
consummate the transactions contemplated hereby and to vest in
Buyer good and valid title to the Shares. No such instrument or
action shall expand a party's liability beyond that provided in
this Agreement.
5. SELLER'S GENERAL REPRESENTATIONS AND WARRANTIES. Whenever "Seller's
knowledge" is referred to herein, it shall mean the actual knowledge of
any of William P. Kelly,
9
<PAGE> 19
Paul J. Viola, Mark D. Roos, Kevin J.O'Gorman, Paul M. Boymel, Joseph J.
Kuchera, John E. Pilecki, James E. Cason, Christopher C. Clarke, Joseph
M. Cesarik, Tom J. Lord or Sean M. O'Laughlin.
Each member of Seller, jointly and severally, represents and warrants to
Buyer as of the date of this Agreement and, as amended in accordance
with Section 12.E as of the Closing Date, as follows:
A. Organization and Good Standing.
i) BPA, Standard and BPX are corporations duly organized,
validly existing, and in good standing under the laws of
the jurisdiction of their respective incorporation.
ii) Unifrax, XPE GmbH and XPE Ltda. have full power and
authority (corporate and otherwise) to own their
properties and assets and to carry on their business as
now being conducted.
iii) Unifrax is duly organized, validly existing, and in good
standing under the laws of Delaware. Unifrax is qualified
or licensed to do business in the jurisdictions in which
the ownership of its property or the conduct of its
business requires such qualification, except jurisdictions
in which the failure to be qualified or licensed would
not, individually or in the aggregate, have a material
adverse effect on the business, assets, properties,
rights, operations or condition (financial or other)
(hereinafter referred to as a "Material Adverse Effect")
of the Unifrax Group.
iv) XPE GmbH is duly organized under the laws of Germany. XPE
GmbH is qualified or licensed to do business in the
jurisdictions in which the ownership of its property or
the conduct of its business requires such qualification,
except jurisdictions in which the failure to be so
qualified or licensed would not, individually or in the
aggregate, have a Material Adverse Effect on the business,
operation or financial condition of the Unifrax Group.
v) XPE Ltda. is duly organized, validly existing, and in good
standing under the laws of Brazil. XPE Ltda. is qualified
or licensed to do business in the jurisdictions in which
the ownership of its property or the conduct of its
business requires such qualification, except jurisdictions
in which the failure to be so qualified or licensed would
not, individually or in the aggregate, have a Material
Adverse Effect on the business, operation or financial
condition of the Unifrax Group.
10
<PAGE> 20
B. Authority. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on behalf of Seller,
and this Agreement constitutes the valid and binding agreement of
each of them enforceable against each of them in accordance with
its terms except: i) as such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditors' rights
generally, and ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before
which any proceeding therefor may be instituted.
C. No Violations. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby do not
and will not violate any of the provisions of any of the Articles
of Incorporation, Certificates of Incorporation, Memorandum, or
the Codes of Regulations, By-Laws or Articles of Association
(collectively "Constituent Documents") of any of the Seller,
Unifrax, XPE GmbH or XPE Ltda., or, result in the creation of any
Lien upon any of the properties of the Unifrax Group; and, will
not violate any statute or law or any judgment, decree, order,
regulation or rule of any court or other governmental body
applicable to the Seller or the Unifrax Group or result in the
breach of, or constitute a default under, any agreement or other
instrument by which any of the Unifrax Group is bound.
D. Capitalization of Members of the Unifrax Group. The authorized
capital stock of Unifrax consists of Three Thousand (3,000)
shares of Common Stock, $1.00 par value per share, One Hundred
(100) of which are issued and outstanding. There are no
outstanding options, or other encumbrances or restrictions
whatsoever, warrants or other rights to subscribe for or
purchase, or contracts, commitments, understandings, arrangements
or claims of any character with respect to, any capital stock or
securities convertible into capital stock (hereafter
"Encumbrances") of any member of the Unifrax Group. All of the
issued and outstanding shares (or, in the case of XPE GmbH and
XPE Ltda., quotas) of the members of the Unifrax Group have been
duly authorized and validly issued, and are fully paid and
non-assessable. Seller has good and marketable title to the
Shares, and the delivery to Buyer of the certificates or other
actions for the transfer of the Unifrax Shares and the Unifrax
Ltda. Shares in accordance with Section 4.B and, the transfer by
notarial deed of the Unifrax GmbH Shares and the payment to
Seller of the Initial Payment in accordance with Section 4.C(i)
will transfer to Buyer record and beneficial ownership of the
Shares free and clear of all Encumbrances. At the Closing,
Unifrax and Buyer will own 100% of the capital stock of both XPE
Ltda. and XPE GmbH free and clear of all Encumbrances. Seller
has made available to Buyer's counsel copies of all the
Constituent Documents, minutes and stock records (or their
equivalents) of the members of the Unifrax Group, all of which
copies are true and complete.
11
<PAGE> 21
E. Investments. The members of the Unifrax Group do not own,
directly or indirectly, any capital stock, equity, partnership or
venture interest in any corporation, partnership, venture or
other entity representing a one percent (1%) or greater interest.
F. Financial Statements. The unaudited combined balance sheet as of
March 31, 1996 and the related unaudited combined statements of
income, changes in parent company investment and cash flows for
the three month period then ended of the Unifrax Group are set
forth in Schedule D (the "March 31, Financial Statements").
Except as set forth in Schedule B, such financial statements
present fairly, in all material respects, the combined financial
position of the Unifrax Group as of March 31, 1996, and the
combined results of its operations and its cash flows for the
three (3) month period then ended in accordance with United
States generally accepted accounting principles, which accounting
principles, except as set forth in Schedule B, were consistently
applied with those accounting principles used in the preparation
of the audited financial statements of the North American Fibers
Division of Unifrax as of and for the year ended December 31,
1995.
Except as set forth in Schedule B, the audited balance sheet of
the Unifrax Group 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 (the "December 31, Financial
Statements"), included as part of the December 31, 1995 audited
financial statements also attached as part of Schedule D present
fairly, in all material respects, the financial position of the
Unifrax Group at December 31, 1995 and the results of its
operations and its cash flows for the year then ended in
conformity with United States generally accepted accounting
principles.
G. Undisclosed Liabilities. To Seller's knowledge, as of the date
hereof, the Unifrax Group has no liabilities or obligations,
whether accrued, absolute, contingent or otherwise, other than i)
liabilities and obligations that are reflected, accrued or
reserved for in the March 31, Financial Statements, ii)
obligations incurred in the ordinary course of business and
consistent with past practice since the date of the March 31,
Financial Statements, iii) loss contingencies set forth in
Schedule F, iv) liabilities and obligations not required to be
recognized in financial statements prepared in accordance with
United States generally accepted accounting principles, v) the
income Tax liabilities (as defined in Section 11), vi)
liabilities of the Discontinued Operations listed on Schedule E
(against which Seller is Indemnifying the Unifrax Group pursuant
to Section 14), and vii) liabilities and obligations excluded
from the March 31, Financial Statements pursuant to Schedule B.
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H. Absence of Certain Changes. Since December 31, 1995, except as
set forth in Schedule F:
i) the business of each member of the Unifrax Group has been
conducted only in the ordinary course;
ii) there has been no increase in the annual rate of
compensation of any officer or management employee of the
Unifrax Group with a base pay in excess of One Hundred
Thousand Dollars ($100,000) per year or any bonus to any
such person that increased such person's total
compensation, except for periodic increases or bonuses
consistent with prior practices;
iii) there has not been any issuance, sale, disposal,
reclassification, split up, redemption, purchase, direct
or indirect, of any shares of the capital stock of the
members of the Unifrax Group, or declaration or payment of
any dividends or distributions with respect to any shares
of their capital stock, (other than dividends or
distributions of cash or marketable securities to the
Seller Group) or any grant of any options, warrants or
calls or other rights to purchase any such shares;
iv) There has not been any declaration, setting aside any
direct or indirect redemption, purchase or other
acquisition by Seller of any of Unifrax capital stock or
of any options, warrants, rights or agreement to purchase
or acquire such stock;
v) There has not been any increase in amounts payable by any
member of the Unifrax Group to or for the benefit of, or
committed to be paid by any member of the Unifrax Group to
or for the benefit of any director, officer, consultant,
agent or employee, in any capacity, of any member of the
Unifrax Group or in any benefits granted under any bonus,
stock option, profit sharing, pension, retirement,
deferred compensation, insurance, or other direct or
indirect benefit plan, payment or arrangement made to, for
the benefit of, or with any such shareholder, director,
officer, agent, consultant or employee in any capacity
except in the ordinary course of business consistent with
past practice and except under the NAF Divestment
Management Separation Program (which is the responsibility
of Seller and not Unifrax);
vi) Other than in connection with the separation from the
businesses sold to Saint-Gobain, there has not been any
material change made by any member of the Unifrax Group in
the methods of doing business or, except as disclosed in
the December 31, Financial Statements any change in the
accounting principles or practices of such entity or the
method of application of such principles or practices; and
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<PAGE> 23
vii) There has not been any labor dispute or disturbances
materially affecting in an adverse fashion the business or
financial condition of any member of the Unifrax Group,
including, without limitation, the filing of any petition
or charge of unfair labor practices with the National
Labor Relations Board or efforts to effect a union
representation election, actual or threatened employee
strikes, work stoppages or slow downs.
I. Owned Real Property; Personal Property; and Real Property Leases.
i) Schedule G contains a true and correct list of addresses
a) of all real property owned by any member of the Unifrax
Group, b) of any real property leased to any member of the
Unifrax Group other than sales offices.
ii) All rentals and other payments due for property leased to
any member of the Unifrax Group have been paid and there
exists no material breach or default thereunder by any
member of the Unifrax Group. To the Seller's knowledge,
there exists no event of default on the part of any other
party to such lease. None of the rights of any member of
the Unifrax Group under any lease set forth on Schedule G
will be subject to termination or modification and no
consent or approval of any third party is required under
such leases as a result of the consummation of the
transactions contemplated by this Agreement, except as
otherwise set forth on Schedule G.
iii) "Permitted Exceptions" means
a)Liens for taxes and assessments not yet due and payable
or that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been
established;
b) Liens in favor of vendors, carriers, warehousemen,
repairmen, mechanics, workmen, materialmen,
construction or similar Liens arising by operation
of law or in the ordinary course of business in
respect of obligations that are not yet due or that
are being contested in good faith by appropriate
proceedings;
c) Liens to be released at or prior to the Closing;
d) Rights reserved to or vested in any local, state or
federal governmental bodies, authorities or
agencies to control or regulate any of the real
property interests in any manner; and
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<PAGE> 24
e) Easements, reservations, rights-of-way,
restrictions, covenants, conditions and other
similar encumbrances whether of record or apparent
on the premises, including, but not limited to,
road, highway, pipeline, railroad and utility
easements, encroachments and defects in the chain
of title, which individually or in the aggregate do
not materially adversely affect the present use of
such real property.
iv) "Lien" means any mortgage, lien, pledge, charge, deed of
trust, security interest, conditional sales contract,
adverse interest in property, or encumbrance of any kind.
v) The buildings, plants and structures and real property
owned by or leased to any member of the Unifrax Group (the
"Real Property") is, except as provided in Schedule F in
such condition and repair as to permit the continued use
and operation of the business of the Unifrax Group,
consistent with past practice. Such buildings, plants and
structures are not in need of any substantial repair or
maintenance (normal wear and tear excepted) the costs for
which have not been provided for in the Unifrax business
plan. Such buildings, plants and structures constitute
all of the buildings, plants and structures necessary for
the continued operation of the business of the Unifrax
Group.
vi) Except as set forth in Schedule F, to the best of Seller's
knowledge, there is no asbestos contained in or forming
part of any building, building component, structure or
office space owned or leased by any member of the Unifrax
Group.
vii) Except for the Permitted Exceptions, Unifrax has good,
valid, insurable and indefeasible fee simple title in the
case of owned Real Property, free and clear of all Liens,
encumbrances and restrictions of any nature.
J. Material Agreements. Except as set forth on Schedule H, no
member of the Unifrax Group is a party to any of the following
(the "Material Agreements"):
i) collective bargaining agreement or other contract with any
labor union or other representatives of employees;
ii) contract, agreement, mortgage or instrument evidencing or
relating to any outstanding indebtedness for borrowed
money or any guarantee of such indebtedness in excess of
One Hundred Thousand Dollars ($100,000);
iii) contract for the purchase by the Unifrax Group of
materials, services or supplies providing for aggregate
payments in excess of One Hundred
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Thousand Dollars ($100,000) not terminable without penalty
upon three months' notice or less;
iv) contract or commitment by the Unifrax Group to purchase,
sell, lease, or otherwise dispose of any assets of the
Unifrax Group in excess of One Hundred Thousand Dollars
($100,000) or with a remaining commitment of one year or
more;
v) written sales agency or distributor agreements which do
not provide for cancellation, on sixty (60) days' notice
in the case of the United States and 90 days or three (3)
months' notice elsewhere in the world, without liability
to the Unifrax Group;
vi) any joint venture, partnership or other arrangement
involving sharing of profits with any person;
vii) agreements not otherwise set forth on Schedule H, Schedule
I or in Section 13 which restrict any member of the
Unifrax Group from carrying on any business anywhere in
the world; and
viii) any written management, compensation or employment
contract or contracts with any employee not on standard
forms, except as otherwise disclosed pursuant to Section
7, or subsection J.i), above.
Except as disclosed in Schedule H, no member of the Unifrax Group is in
default under, or in breach of any term or provision of, any
contract(s), agreements or commitments which default will have a
Material Adverse Effect on the Unifrax Group.
K. Intellectual Property.
i) Schedule I attached hereto contains a list of all patents
and pending applications therefor, all registered and
material unregistered trademarks and registered claims to
copyrights, and pending applications therefor, and
technology licenses and material software licenses (other
than licenses of commercially available software) (the
"Intellectual Property") presently used by the Unifrax
Group divided into items owned by members of the Unifrax
Group and items licensed from third parties. The
Intellectual Property does not include any rights to the
marks "BP," "BP and Shield," "BP Chemicals," "Carborundum"
or variants thereof except that Unifrax has certain
limited rights to use the Carborundum trademark as
referenced in the documents listed in Section 13.
ii) Except as disclosed on Schedule I, members of the Unifrax
Group own or have the valid right to use the Intellectual
Property to the extent
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<PAGE> 26
used in the current operations of the Unifrax Group except
as provided in the last sentence of Section 5.K.i), and
the consummation of the transactions contemplated hereby
will not alter or impair any such rights.
iii) To Seller's knowledge, the current operations of the
Unifrax Group do not infringe any valid patent, trademark,
copyright or trade name. The Intellectual Property and
the know-how possessed by the members of the Unifrax Group
and the information and know-how generally known to
companies in similar businesses, are collectively
sufficient to carry on the operations of the Unifrax Group
as presently conducted. Except as disclosed on Schedule
I, no claim by any third party contesting the validity,
enforceability, use or ownership of the Intellectual
Property has been made, is currently outstanding or, to
Seller's knowledge, is threatened.
iv) Except as described in Schedule I, no royalty or fees are
payable by any member of the Unifrax Group to anyone for
the use of the Intellectual Property as of December 31,
1995 except for those reflected in the December 31,
Financial Statements.
L. Litigation. Schedule J contains a list of all pending lawsuits,
actions or proceedings involving the assets, employees, property
or business of any member of the Unifrax Group (regardless of the
member of the BP Group actually named as a party) except those
for which Seller has agreed to Indemnify Buyer pursuant to
Section 14.B.
M. Compliance With Laws. Except as set forth in Schedule F attached
hereto, (and except with respect to laws pertaining to the
environment which are covered by Section 6) the members of the
Unifrax Group are in compliance with all laws, governmental
regulations, orders or decrees ("Laws") except for violations
which, in the aggregate, would not have a Material Adverse
Effect.
N. Personal Property. Schedule K lists all items of personal
property including machinery and equipment owned by the members
of the Unifrax Group with an individual net book value of One
Hundred Thousand Dollars ($100,000) or more ("Personal
Property"). The Unifrax Group has good and marketable title to
all its owned Personal Property free and clear of all Liens other
than Permitted Exceptions. Subject to normal replacement
requirements, ordinary wear and tear and maintenance
requirements, the members of the Unifrax Group own or have
sufficient rights to use all Personal Property necessary for the
present conduct of their operations. Except for Personal
Property temporarily under repair or out-of-service or not
currently in use, the Personal Property of each member of the
Unifrax Group is in reasonable operating
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<PAGE> 27
condition, ordinary wear and tear excepted, taking into account
the age thereof and the repairs and planned capital expenditures.
O. Personal Property Leases. Schedule L contains a list of Personal
Property leased by the Unifrax Group involving payments of more
than One Hundred Thousand Dollars ($100,000) annually or having
an unexpired term of more than eighteen (18) months exclusive of
leases for office equipment such as telephones, postage meters,
copiers and word processors.
P. Capital Expenditures. Schedule M lists all commitments for
capital expenditures not included in the Unifrax Business Plan.
Q. Permits and Licenses. Except for Environmental Permits which are
covered by Section 6, each member of the Unifrax Group has all
permits and licenses necessary to conduct its business in the
manner presently being conducted and all such permits and
licenses are in full force and effect except for permits and
licenses the absence of which would not have a Material Adverse
Effect.
R. Labor Matters. Except as set forth on Schedule N, with respect
to the Unifrax Group:
i) there is no unfair labor practice charge or complaint
against any member pending or, to Seller's knowledge,
threatened;
ii) there is no labor strike, dispute, slowdown or stoppage
pending or, to Seller's knowledge, threatened;
iii) no grievance which is expected to have a Material Adverse
Effect on the individual operation involved nor any
material arbitration proceeding arising out of or under a
collective bargaining agreement is pending;
iv) there are no existing labor settlement agreements, court
orders or administrative board decisions which will have a
continuing effect specifically against any member of the
Unifrax Group; and
v) to Seller's knowledge, there are no trade union organizing
efforts under way at any facility.
S. Inventories and Receivables. All trade accounts receivable
reflected in the March 31, 1996 balance sheet and all accounts
receivable arising between the date hereof and the date of
Closing are or will be valid and subsisting, represent or will
represent sales actually made, arose or will arise in the
ordinary course of business. The allowance for doubtful accounts
reflected in the March 31, 1996 balance sheet was determined
consistent with the practices
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<PAGE> 28
used in establishing the allowances on the December 31, 1995
balance sheet. Except as set forth in Schedule B: i) all of the
inventories of each member of the Unifrax Group consist of a
quality and quantity usable and saleable in the ordinary and
usual course of business, except for items of obsolete materials
and materials of below-standard quality, all of which have been
written off or written down to fair market value; and ii) all
inventories not written off or written down have been priced at
the lower of cost which, in most cases, is determined on a last
in first out basis, or market. This warranty on inventories and
receivables will not survive the final determination of the
Closing Net Working Capital.
T. Taxes. Except with respect to income Taxes, the responsibility
for which is being retained by Seller pursuant to Section 11 of
this Agreement:
i) each member of the Unifrax Group has filed, or by the
Closing Date will have filed, in a timely manner (taking
into account all extensions of due dates) with the
appropriate federal, state, local and foreign governmental
authorities all tax returns, tax reports, and tax forms,
if any, that are required to be filed by or on behalf of
any member of the Unifrax Group on or before the Closing
Date. Such tax returns, tax reports, and tax forms are
complete and correct in all respects, and each member of
the Unifrax Group has paid in full, or on the Closing Date
will have paid in full, all Taxes shown to be due and
payable on said returns. Except with respect to income
Taxes, adequate provisions in accordance with generally
accepted accounting principles have been made and are
reflected in the March 31, Financial Statements and will
be reflected in the Post-Closing Statement for the payment
of any and all Taxes for which any member of the Unifrax
Group may be liable for the periods covered thereby that
were not yet shown to be due and payable as of the dates
thereof. As of the Closing Date, each member of the
Unifrax Group will have satisfied, for all periods through
the Closing Date, all applicable federal, state, local,
and foreign withholding tax requirements (including,
without limitation, income, social security, and
employment tax withholding for all types of compensation).
"Taxes" means any federal, state, provincial, county,
local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, alternative minimum,
withholding, environmental, social security (or similar),
unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added,
estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether
disputed or not. There is no pending tax audit issue that
if determined adversely to any member of the Unifrax Group
would have a Material Adverse Effect on the Unifrax
Group.
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<PAGE> 29
ii) No property owned by any member of the Unifrax Group is
property that the Buyer will be required to treat as being
owned by another person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended (the "Code") and in effect immediately before the
enactment of the Tax Reform Act of 1986, or is "tax exempt
use property" within the meaning of Section 168(h)(l) of
the Code.
iii) No Seller of a United States real property interest (as
defined in Section 897(c) of the Code) is a "foreign
person" within the meaning of Section 1445(f)(3) of the
Code and Buyer is not required to withhold Taxes on the
purchase of the Shares of any Seller by reason of Section
1445 of the Code.
iv) No member of the Unifrax Group is a "consenting
corporation" under Section 341(f) of the Code.
U. Insurance. Any damage (caused by fire or other casualty) to
property, plant and equipment occurring prior to the Closing
shall be included on Schedule F, as the same may be amended or
supplemented prior to Closing. Seller shall repair or cause such
damage to be repaired and shall restore the property, plant and
equipment to substantially the same condition as it was in prior
to the occurrence of the damage and, in such event, Buyer and the
Unifrax Group shall not be entitled to make any other claim for
breach of warranty under this Agreement with respect to such
damage. Seller shall be entitled to receive all insurance
proceeds relating to such damage paid or payable whether by third
party insurance or by any present or former member of the Seller
Group. Seller shall retain all rights to any insurance proceeds
(whether from third parties or the Seller Group) applicable to
any business interruption coverage for periods prior to the
Closing Date.
V. Employee Matters. Except as noted on Schedule F, Schedule J or
Schedule N, there exists no basis for employee claims against any
member of the Unifrax Group for wrongful discharge or violations
of laws on employment practices including, those Federal, state
or local laws prohibiting employment discrimination based on age,
sex, race, color, national origin, handicap, or veteran status,
including the Age Discrimination in Employment Act and Title VII
of the Civil Rights Act of 1964.
W. Survival of Representations and Warranties/Investment References.
Except as otherwise provided in this Agreement, Seller's
representations and warranties set forth in this Agreement shall
survive Closing for a period coincident with the time limitations
set forth in Section 14.G. References to Unifrax or Unifrax
Group in any representations and warranties made by Seller in
this Agreement shall exclude Investment, its assets and
liabilities.
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X. Required Consents. No consent, approval, waiver or other action
by any person (other than any governmental body, agency, official
or authority referred to in Section 6.A.iv) under any contract,
agreement, indenture, lease, instrument or other document to
which any member of the Unifrax Group is a party or by which it
is bound is required or necessary for the execution, delivery and
performance of this Agreement or the consummation of the
transactions contemplated by this Agreement except where the
failure to obtain any such consent, approval, waiver or action
would not, individually or in the aggregate, result in a Material
Adverse Effect.
Y. Books of Account; Records. The general ledgers, and other
material records of each member of the Unifrax Group are, in all
material respects, complete and correct, and have been maintained
in accordance with good business practices.
Z. Transfer of Sanborn Operation. Prior to the Closing, the real
property located at Seller's Sanborn, New York facility (the
"Sanborn Property") will be transferred to an affiliate of Seller
by quit claim deed.
6. ENVIRONMENTAL.
A. Definitions. The following terms shall have the following
meanings:
i) "Environmental Compliance Action" means any expenditure,
action or construction necessary to cause any equipment,
structure, facility, device or process which is located on
the Closing Date at any of the Facilities, and subject to
regulation pursuant to Environmental Laws, to be in
compliance with applicable Environmental Laws in effect on
or before the Closing Date. Environmental Compliance
Action may include relaxation in Environmental Laws
subsequent to the Closing Date, and shall exclude any
Remedial Action.
ii) "Environmental Losses" means any and all claims, damages,
losses, expenses, costs, and liabilities of any kind
imposed or incurred pursuant to Environmental Laws,
including without limitation remedial, removal, response,
restoration, abatement, investigative, testing,
monitoring, personal injury, death and property damage
costs.
iii) "Environmental Laws" means federal, state, local and
foreign laws, statutes and regulations, relating to
pollution or the protection, cleanup or restoration of the
environment, or to safety or health, including, but not
limited to, any of the same relating to (a) generation,
treatment, storage, disposal or transportation of wastes,
emissions or discharges
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or protection of the environment from the same; (b) noise;
(c) exposure to Hazardous Substances; or (d) regulation of
the manufacture, processing, distribution in commerce or
use of chemical substances, food and drug products,
ingredients and additives, insecticides and pesticides,
including without limitation the United States Clean Air
Act, the United States Clean Water Act, the United States
Resource Conservation and Recovery Act ("RCRA"), the
United States Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the United
States Oil Pollution Act, and the U.S. Occupational
Safety and Health Act, in each case as amended and
including their state and local analogs.
iv) "Environmental Permit" means any approval, license, order
to permit or other similar authorization of or with any
governmental authority (or any other persons) necessary
for the ownership and operation of any of the Facilities
in compliance with applicable Environmental Laws.
v) "Facilities" means the properties and assets (including,
without limitation, real or personal property) owned,
leased, occupied or otherwise operated by any member of
the Unifrax Group as of the Closing Date.
vi) "Hazardous Substance" means any toxic substance or waste,
pollutant, hazardous substance, contaminant, insecticide,
pesticide, special waste, industrial substance or waste,
or any constituent of any such substance or waste to the
extent regulated under or defined by or pursuant to any
Environmental Law.
vii) "Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the environment or
into or out of any property, including the movement of
Hazardous Substances through or in the air, soil, surface
water, ground water or property.
viii) "Remedial Action" means all actions, whether undertaken
pursuant to judicial or administrative order or otherwise,
reasonably necessary to comply with applicable
Environmental Laws, to (a) clean up, remediate, remove,
treat, cover or in any other way adjust Hazardous
Substances in the environment; or (b) perform remedial
studies, investigations, restoration and post-remedial
studies, investigations and monitoring on, about or in any
environmental media. Remedial Action shall exclude any
changes or additions to the equipment or improvements on
the Facilities covered by Environmental Compliance Actions
but not those additions or improvements made in connection
with a Remedial Action.
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<PAGE> 32
B. Seller's Environmental Representations and Warranties. Seller
hereby represents and warrants to Buyer as follows:
i) Except as may be disclosed in Schedule F, Seller has
obtained all required Environmental Permits and the
Facilities are being operated in compliance with
applicable Environmental Laws in effect as of the Closing
Date.
ii) Except as may be disclosed in Schedule F, there are no
lawsuits or administrative enforcement or environmental
cleanup proceedings pending or, to Seller's knowledge
threatened, with respect to the condition or operation of
any of the Facilities. Except as may be disclosed in
Schedule F, none of the Facilities have been placed on, or
to the best of Seller's knowledge, proposed to be placed
on, the National Priorities List or its state equivalents
pursuant to CERCLA or analogous foreign or state laws,
including laws which establish registers of historically
contaminated sites, and none of the Facilities include
underground storage tanks subject to regulation under RCRA
or under foreign, federal or state laws aimed at the
protection of waters or at hazardous waste disposal, from
which there has been a Release of Hazardous Substances.
iii) The execution, delivery and performance of this Agreement
and the other documents and instruments referred to
therein or contemplated thereby, the consummation of the
transactions contemplated thereby and the performance by
Seller of its obligations thereunder do not and will not
violate any Environmental Law or any Environmental Permit.
iv) Except as may be disclosed in Schedule F, no Release of
Hazardous Substances has occurred on any Facilities or, to
Seller's knowledge, on any properties adjacent to such
Facilities in such a manner as to require Remedial Action
with respect to the Facilities.
C. Environmental Due Diligence. Reviews have been conducted by
Pilko & Associates of health, safety and environmental matters at
various facilities of the Unifrax Group, and true, correct and
complete copies of the reports thereof (the "Consultants'
Reports") have been provided to Buyer. Except as disclosed in
Schedule F, no adverse change in conditions has occurred from the
date of the Consultants' Reports to the Closing Date which would
render any of the Consultants' Reports inaccurate in any material
respect. To Seller's knowledge, none of the Facilities of the
Unifrax Group is subject to any liability for compliance or
Remedial Action expense beyond the matters identified in the
Consultants' Reports. To Seller's knowledge, there is no
proceeding pending at a regulatory agency to ban the sale of any
Unifrax
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<PAGE> 33
products. Absent a legal duty or a legitimate business purpose,
Buyer shall not voluntarily undertake, nor cause or induce to be
undertaken, a course of action designed to (or likely to have
such effect) identify the nature, scope or extent of Releases of
Hazardous Substances at the Facilities, which may lead to a
requirement for Remedial Action.
D. Buyer's Environmental Representations. Buyer has examined each
of the Consultants' Reports, and acknowledges the limitations set
forth therein, and that conditions on or under the Facilities, or
methods of operation of the Facilities, may lead to remediation
expenditures beyond those identified in the Consultants' Reports.
The existence of the Consultants' Reports and the matters set
forth therein shall not in any way limit Buyer's ability to be
Indemnified pursuant to this Agreement.
7. EMPLOYEES AND BENEFITS.
A. Representations and Warranties as to United States Employee
Benefit Plans.
i) Schedule P (Part A) attached hereto contains a list of all
of the following plans maintained or contributed to by the
Seller Group or the Unifrax Group (a) on behalf of United
States active employees of Unifrax (the "U.S. Employees")
(collectively, the "Benefit Plans") or (b) on behalf of
former United States employees including retirees of the
Unifrax business;
a) nonqualified deferred compensation or retirement
plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA");
b) qualified defined contribution or defined benefit
plans which are employee pension benefit plans (as
defined in Section 3(2) of ERISA) (the "Pension
Plans");
c) employee welfare benefit plans (as defined in
Section 3(1) of ERISA); and
d) each other material plan, program, agreement or
arrangement that provides benefits for the U.S.
Employees or former United States employees
including retirees of Unifrax or the Unifrax
business, including, without limitation, any
severance and other plans that may result in
payments as a result of the transactions
contemplated by this Agreement.
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All related trust or other instruments which
provide for funding plan benefits are also
identified on Schedule P (Part A) hereto.
ii) Neither Unifrax Group nor the Seller Group contributes on
behalf of any employee of Unifrax to any multiemployer
plans (as defined in Section 4001(a)(3) of ERISA) or has
any withdrawal liabilities with respect to any such
multiemployer plans.
iii) Unifrax or the Seller Group has or will have made all
employer contributions required and due to be paid as of
the Closing Date with respect to any Pension Plan. The
Pension Plans have been funded in compliance with the
applicable minimum funding standards of ERISA, and neither
Seller nor Unifrax has sought a waiver of the minimum
funding standards under Section 412 of the Code.
iv) The Pension Plans and their related trusts have been
maintained in compliance with the Code and the regulations
thereunder. Except as indicated on Schedule P (Part A),
(a) each of the Pension Plans and their related trusts has
been the subject of a favorable determination letter under
Sections 401(a) and 501(a) of the Code and no such
determination letter has been revoked, nor has revocation
been threatened. All amendments required by law have been
or will be made to the Pension Plans within the applicable
Code remedial amendment period. Each such Pension Plan
has been administered and operated in accordance with its
terms and in such a manner as to preserve its
tax-qualified status. No such Pension Plan had an
"accumulated funding deficiency" within the meaning of
Section 412(a) of the Code as of the end of the most
recently completed plan year.
v) All material reporting or disclosure requirements to
federal, state and local governments and governmental
agencies and to all Benefit Plan participants and
beneficiaries, and the applicable requirements under Part
6 of Title I of ERISA and Section 4980B of the Code have
been satisfied with respect to the Benefit Plans, and the
Benefit Plans and any related trust have been maintained
in substantial compliance with ERISA and any other
applicable laws and regulations.
vi) Except as set forth on Schedule P (Part A) hereto or as
may be required by this Agreement or any collective
bargaining agreement listed on Schedule N, neither Unifrax
nor the Seller has any agreement, commitment or
understanding: (a) to create any additional plan which
would constitute a Benefit Plan for the U.S. Employees or
to increase the rate of benefit accrual or contribution
requirement under any of the Benefit Plans with respect to
the U.S. Employees; or (b) to modify,
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change or terminate, in any material respect, any existing
Benefit Plan for U.S. Employees.
vii) Unifrax and certain members of the controlled group of
corporations (within the meaning of Section 414(b) and (c)
of the Code) of which Unifrax forms a part, presently
maintain one or more qualified defined benefit pension
plans which are not multiemployer plans but which are
subject to the provisions of Title IV of ERISA. With
respect to each such plan:
a) No asset of Unifrax is subject to a lien by reason
of the provisions of Section 412(n) of the Code;
b) To the best of Seller's knowledge, there exists no
ground upon which the Pension Benefit Guaranty
Corporation ("PBGC") would demand termination of
such plan or appointment of itself or its nominee
as trustee thereunder; and
c) As of the Closing Date, no liability to the PBGC
has been incurred with respect to those Pension
Plans which are defined benefit plans other than
premiums due and not yet payable.
viii) Except as disclosed in Schedule P, there are no pending
or, to the Seller's knowledge, threatened claims by or on
behalf of any of the Assumed Plans (as defined in Section
7.C.ii) below, by any employee or beneficiary covered
under such Assumed Plans, or otherwise involving any such
Assumed Plan (other than routine claims (including
appeals) for benefits).
B. Representations and Warranties as to Non United States Plans.
Schedule P (Part B) constitutes a true and complete list of all
profit sharing, bonus or other incentive, voluntary insurance,
retirement, welfare and health plans maintained by XPE GmbH with
respect to its employees (collectively, the "German Plans").
Each German Plan complies in all respects with all applicable
laws and, other than claims for benefits submitted by
participants or beneficiaries in the normal course, there is no
litigation, claim, or other proceeding pending against or
affecting any German Plan. There are no premiums, contributions,
payments or other assessments due and owing with respect to any
German Plan, and the accruals made and to be made by XPE GmbH, as
the case may be, for future obligations thereunder are complete
and represent the maximum amount allowed to be reserved for tax
purposes of such obligations as of the Closing Date.
C. United States Employee and Benefit Matters.
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i) Unifrax shall provide severance and related benefits to
any non-represented U.S. Employees who are active
employees of Unifrax as of the Closing Date (it being the
intent of the parties for purposes of this Agreement that
active employees shall only include those employees on the
active payroll of Unifrax as of the Closing Date and those
employees on leave under the Family and Medical Leave Act
or similar legislation) and who are later terminated by
Buyer or Unifrax from employment with Unifrax or Buyer
within twelve months after the Closing Date under The 1996
Unifrax Involuntary Separation Program (in the form
attached as Schedule Q), provided, however, that Seller
shall retain, and neither Unifrax nor Buyer shall be
obligated to provide, any severance and related benefits
to any employee or former employee who receives benefits
from the NAF Divestment Management Separation Program (a
list of whom is included on Schedule R).
ii) From and after the Closing Date, Unifrax shall assume,
retain and discharge all of the liabilities and
obligations under, and shall be the plan sponsor of, each
Benefit Plan listed on Schedule P-1 (the "Assumed Plans").
With respect to the Carborundum Capital Accumulation Plan
("CAP"), Seller shall vest the active U.S. Employees in
their account balances as of the Closing Date, and the
parties shall, beginning immediately following the Closing
Date, take such actions as may be required to transfer in
a manner complying with Code Sections 411(d)(6) and
414(l), the account balance liabilities and related assets
pertaining to the active U.S. Employees from CAP and its
related trust to a separate qualified plan (the "Unifrax
CAP") and its related trust established by Unifrax on or
after the Closing. Such transfer shall occur on a date
(the "Transfer Date") agreed to by Buyer and Seller.
Buyer and Seller agree to use their best efforts to effect
such transfer on or before December 31, 1996.
The value of the assets to be transferred shall be
calculated by the CAP trustee and shall equal the
liquidated value of the aggregate account balances
(including employer contributions accrued based on pay and
service through the Closing Date and all earnings accrued
as of the Transfer Date) received by the CAP trustee in
order to transfer on the Transfer Date. The Unifrax CAP
and its related trust must be reasonably satisfactory to
Seller and its counsel prior to the transfer of assets and
liabilities and Buyer or Unifrax shall take all actions
required to establish and to maintain such plan and trust
as qualified and tax-exempt under Sections 401(a) and
501(a) of the Code. Unifrax and Seller further agree that
they shall each provide the other with
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<PAGE> 37
reasonable assurances of such tax-qualified status with
respect to each of their respective plans prior to the
transfer of assets and liabilities. If required, Unifrax
and Seller shall each file IRS Form 5310-A with respect to
the transfer at least thirty days prior thereto. Buyer
and Seller acknowledge and agree that the Unifrax CAP
shall not be included on the Assumed Plan list.
With respect to the BP America Retirement Accumulation
Plan, Seller agrees to vest the affected U.S. Employees in
their accrued benefits under such Plan as of the Closing
Date. With respect to the BP America Master Hourly Plan
for Represented Employees, plan sponsorship shall be
retained by Seller Group and, effective as of the Closing
Date, the accrued benefit liabilities and related assets
pertaining to active U.S. Employees under such plan shall
be transferred in a manner complying with Code Sections
411(d)(6) and 414(l) to a separate qualified plan to be
maintained by Buyer Group (the "Mirror Plan"). The
calculation of the value of the assets to be transferred
shall be made by Seller's actuary in accordance with the
actuarial assumptions in the attached Schedule P-2 and
shall equal the accumulated benefit obligation of the
active U.S. Employees as of the Closing Date decreased for
benefit payments made after the Closing Date and before
the transfer date on behalf of the active U.S. Employees
(the "Transfer Amount"). The calculation of the Transfer
Amount by Seller's actuary shall be subject to review by
Buyer's actuary. The Transfer Amount shall accrue
interest from the Closing Date to the transfer date at a
rate equal to a seven percent (7%) rate compounded
annually. The Transfer Amount shall be transferred
hereunder in the form of cash or cash equivalents. The
Mirror Plan and its related trust shall be reasonably
satisfactory to Seller and its counsel and Unifrax shall
take all actions required to establish and to the extent
continued, to maintain the Mirror Plan and its related
trust as qualified and tax-exempt under Sections 401(a)
and 501(a) of the Code. Unifrax and Seller further agree
that they shall each provide the other with reasonable
assurances of such tax-qualified status with respect to
each of their respective transferor and transferee plans,
as applicable, prior to the transfer of assets and
liabilities. If required, Unifrax and Seller shall each
file IRS Form 5310-A with respect to the transfer at least
thirty days prior thereto. The transfer of the Transfer
Amount shall occur no later than sixty (60) days following
the completion of the review by Buyer's actuary of the
calculation of the Transfer Amount and the satisfaction of
the requirements of this Section 7.C.(ii).
Notwithstanding anything to the contrary contained in this
Agreement, neither Buyer nor Unifrax shall be responsible
for any of Seller's obligations for post-retirement
medical and/or life insurance coverage
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<PAGE> 38
to retirees or other employees terminated prior to the
Closing Date or to any employee who receives benefits
under either (1) the NAF Divestment Management Separation
Program or (2) the Project Elm Involuntary Separation
Program for Transition Employees. Nor shall Unifrax be
responsible for any of Seller's obligations under any non
qualified, excess or supplemental pension benefit plans
for U.S. Employees, any non U.S. Employees of Unifrax, or
any former United States Employees including retirees of
the Unifrax business.
iii) From and after the Closing Date, Unifrax shall assume,
retain and discharge any and all liabilities relating to
the active U.S. Employees subject to Schedule P (Part A,
Item B.5++), including but not limited to, under the
Assumed Plans and, after the transfer of assets, under the
Mirror Plans described in Section 7.C.ii) above.
Notwithstanding the foregoing, other than the Assumed
Plans and the Mirror Plans, and except as otherwise
required by law or by the terms of any collective
bargaining agreement continued by Unifrax, Unifrax shall
from and after the Closing Date, have no obligation to
continue or establish any other benefit programs, policies
or practices that may have existed prior to the Closing
Date, and the liabilities with respect to any such
programs not continued by Unifrax, shall remain the
responsibility of Seller.
iv) From and after the Closing Date, the Active U.S. Employees
shall be given credit for their service recognized by
Unifrax prior to the Closing Date solely for purposes of
participation eligibility and vesting under all applicable
plans and programs of Buyer and/or Unifrax and, after the
asset transfers described in Section 7.C.ii) above,
benefit accruals under the Mirror Plans.
v) Seller will make all employer and employee contributions
required under all Assumed Plans applicable to U.S.
Employees for service and compensation paid or earned
prior to the Closing Date, within the time period
prescribed by applicable law using its best efforts to
comply with past practice.
D. General.
Nothing herein expressed or implied shall confer upon any
employee, former employee (including retirees) or legal
representative thereof, any right of any nature or kind
whatsoever under or by reason of this Agreement including but
not limited to any benefit plan entitlements or employment or
continued employment for any specified period.
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<PAGE> 39
8. DISCLAIMER OF IMPLIED WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH IN THIS AGREEMENT AND IN THE SCHEDULES, EXHIBITS AND THE
INSTRUMENTS THERETO, AND TO THE EXTENT PERMITTED BY LAW, DOCUMENTS AND
AGREEMENTS REFERRED TO HEREIN OR EXECUTED IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY: SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR NATURE WITH RESPECT TO THE UNIFRAX GROUP, ITS
ASSETS OR LIABILITIES, ANY PORTION THEREOF OR OTHERWISE; AND SELLER
HEREBY DISCLAIM ANY IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
9. BUYERS' REPRESENTATIONS AND WARRANTIES. Effective as of the date of
this Agreement, and as of the Closing Date, Buyer hereby represents and
warrants to Seller as follows:
A. Organization and Good Standing. Buyer and Investment are each a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation.
B. Authority. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on behalf of each of
Buyer and Investment. This Agreement is binding on Buyer and
Investment in accordance with its terms, except: i) as such
enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally, and ii) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may
be instituted.
C. Non-Contravention. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby do
not and will not violate any of the provisions of any of the
Constituent Documents of Buyer and will not result in the breach
of, or constitute a default under, any agreement or other
instrument by which Buyer or Investment is bound, except to the
extent such breach of default would not have a Material Adverse
Effect on Buyer or Investment.
D. Financing. Buyer has provided Seller letters from Buyer's
potential financing sources of the funds necessary to pay the
Purchase Price. Buyer's ability to consummate the transactions
contemplated hereby is contingent on its ability to complete a
public or private placement of securities prior to or on the
Closing Date.
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<PAGE> 40
E. Survival of Representations and Warranties. Except as otherwise
provided in this Agreement, Buyer's representations and
warranties set forth in this Agreement shall survive Closing for
a period coincident with the time limitations set forth in
Section 14.G.
F. Required Consents. No consent, approval, waiver or other action
by any person (other than any governmental body, agency, official
or authority referred to in Section 6.A.iv.) under any contract,
agreement, indenture, lease, instrument or other document to
which Buyer is a party or by which it is bound is required or
necessary for the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated by
this Agreement except where the failure to obtain any such
consent, approval, waiver or action would not, individually or in
the aggregate, result in a Material Adverse Effect.
10. BROKERAGE/EXPENSES. C.S. First Boston Corporation has acted as an
advisor to Seller in this transaction, and its compensation will be the
responsibility of Seller. Neither party has retained any other broker
or finder in connection with the transactions contemplated by this
Agreement. Each party will bear the expenses of their respective
agents, lawyers, auditors and advisors in connection with the
transactions contemplated by this Agreement. In the event the Closing
occurs, Unifrax shall pay the expenses of the Buyer and up to $55,550 of
the Seller's expenses and such payments will not be part of the Closing
Net Working Capital.
11. TAXES.
A. Liability for Taxes.
i) Seller shall be responsible for and pay for any federal,
foreign, state or local income Taxes (including interest
and penalties, if any), payable with respect to the income
of the members of the Unifrax Group attributable to any
period ending on or before the Closing Date, including any
income Tax caused by or resulting from the Section
338(h)(10) Election contemplated in Section 11.F below
(the "338(h)(10) Election") below, and any Tax imposed on
the members of the Unifrax Group pursuant to Treasury
Regulations Section 1.1502-6 with respect to the taxable
income of any of the Seller Group. For the avoidance of
any doubt, Seller shall not be liable for any income tax
resulting from the subsequent sale, disposition or
abandonment of any assets of the Unifrax Group after the
Closing Date.
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ii) Unifrax shall pay for any Tax incurred by or attributable
to the operations of the Unifrax Group for which Seller
are not liable under Section 11.A.
iii) Whenever it is necessary for purposes of subsections A.i),
A.ii) and C. of this Section 11 to determine the portion
of any income Tax (other than federal income Tax) incurred
by or attributable to the operations of the Unifrax Group
for a taxable period beginning prior to and ending after
the Closing Date which is allocable to the Pre-Closing
Date period, the determination shall be made by assuming
that the Pre-Closing Date period constitutes a separate
taxable period of the Unifrax Group and by taking into
account the actual activities and income or loss of the
Unifrax Group during such period, except that exemptions,
allowances and/or deductions for a taxable period
beginning prior to and ending after the Closing Date that
are calculated on an annual or periodic basis shall be
apportioned to the Pre-Closing Date period on a per diem
basis. "Pre-Closing Date period" shall mean with respect
to any taxable period beginning prior to and ending after
the Closing Date, the portion of such taxable period
beginning on the date such taxable period commences and
ending on the Closing Date.
iv) Effective as of the Closing Date, all liabilities and
obligations between any member of the Unifrax Group, on
the one hand, and any member of the Seller Group, on the
other hand, under any tax allocation or sharing agreement
or arrangement in effect prior to the Closing Date shall
be deemed to have been extinguished in full (without the
necessity of any payment with respect thereto) and any
liabilities or rights existing under any such agreement or
arrangement shall terminate and shall no longer be
enforceable. Seller shall execute and cause any other
member of the Seller Group to execute any documents
necessary to effectuate the provisions of this Section
11.A.iv).
v) Buyer shall be responsible for the cost of all stamp,
value added real property gains and similar type of Taxes
arising from the transactions contemplated by this
Agreement.
vi) Buyer and Seller shall share 50/50 the cost of transfer
taxes and similar types of Taxes including the New York
real property transfer tax.
B. Preparation of Returns. Seller shall prepare or cause to be
prepared, and shall file or cause to be filed, all tax returns
with respect to Taxes of, or which include, the Unifrax Group for
all taxable periods ending on or prior to the Closing Date.
Buyer shall prepare or cause to be prepared, and shall file or
cause to be filed, all tax returns with respect to Taxes of, or
which include, the Unifrax Group for all taxable periods ending
after the Closing Date.
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C. Refunds. Buyer agrees to assign and promptly remit (and to cause
the Unifrax Group to assign and promptly remit) to Seller all
refunds for any Pre-Closing Date period (including interest
received thereon) of any Taxes received by any of them for which
the Seller are responsible under this Section 11. Seller agrees
to promptly remit to Buyer all Taxes (including interest and
penalties, if applicable) levied on Buyer for which Seller are
responsible under this Section 11. Nothing in this Section 11.C.
shall prevent Seller from contesting, in good faith, any tax
liability pursuant to Section 11.E..
D. Assistance and Records. Buyer and Seller shall provide, and
shall cause their respective affiliates to provide, each other
with such assistance as they may reasonably request in connection
with the preparation of tax returns required to be filed, any
audit or other examination by any taxing authority, any judicial
or administrative proceedings relating to liability for taxes, or
any claim for refund in respect of such taxes. Such assistance
shall include making employees available to the other party and
their counsel, providing additional information and explanation
of any material to be provided, furnishing to or permitting the
copying by the other party or their counsel of any records,
returns, schedules, documents, work papers or other relevant
materials which might reasonably be expected to be used in
connection with such return, audit, examination, proceeding or
claim. The requesting party will reimburse the other party for
any out of pocket costs reasonably incurred in providing such
assistance. The parties will use their best efforts to retain,
for a period of ten (10) years after the Closing Date, and upon
the request of the other party, provide, any records or
information which may be relevant to such return, audit,
examination, proceeding or claim.
E. Tax Contests.
i) Seller shall promptly notify Buyer of any audit or
examination of the Unifrax Group relating to Taxes payable
in respect of a taxable period that ends on or before the
Closing Date (a "Pre-Sale Year"). Thereafter, if there
is commenced an administrative or judicial proceeding in
which the Internal Revenue Service or a state, foreign or
local government is a party relating to Taxes payable by
the Unifrax Group (a "Contest"), Seller shall keep Buyer
advised of any material developments in any such Contest.
Seller shall, in good faith, consult with Buyer concerning
the appropriate actions or positions to be taken
throughout the course of any such Contest. Seller shall
have full control over any such Contest relating solely to
a Pre-Sale Year and ultimate discretion with respect to
any decision to be made or the nature of any action to be
taken in the course thereof. For purposes of this Section
11.E.i), the term "Contest" shall refer only to a Contest
relating to income Taxes payable with respect to a Pre-
Sale year.
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ii) Buyer and Seller each will promptly notify the other of
any audit or examination of any member of the Unifrax
Group relating to Taxes payable in respect of any taxable
period beginning before and ending after the Closing Date
(the "Closing Period"). In the event of any Contest
regarding the Closing Period, (a) if such Contest relates
solely to liability for Taxes for that portion of the
Closing Period ending on the Closing Date, the Seller
shall have full and complete control of any such Contest;
(b) if such Contest relates solely to liability for Taxes
for that portion of the Closing Period following the
Closing Date, Buyer shall have full and complete control
of such Contest; and (c) if such Contest relates to
liability for Taxes both for a portion of the Closing
Period preceding the Closing Date and a portion of the
Closing Period following the Closing Date, then Seller and
Buyer jointly shall control the Contest and agree to
cooperate in good faith in the pursuance of such Contest.
Seller and Buyer shall keep each other advised of any
material developments in any such Contest. Seller and
Buyer shall, in good faith, consult with each other
concerning the appropriate actions or positions to be
taken throughout the course of such Contest. For purposes
of this Section 11.E.ii), the term "Contest" shall refer
only to a Contest relating to income Taxes payable with
respect to the Closing Period.
iii) Buyer shall promptly notify Seller of any issues which
arise out of an audit or examination relating to Taxes
payable in respect of a taxable year or taxable period of
any member of the Unifrax Group beginning on or after the
Closing Date (a "Post-Sale Year") which could affect the
way an item is treated in the Pre-Closing Date period and
keep Seller advised of material developments relating
thereto. Buyer shall, in good faith, consult with Seller
concerning the appropriate actions or positions to be
taken throughout the course of such proceeding, but shall
have full control over any Contest and ultimate
discretion with respect to any decisions to be made or the
nature of any action to be taken in the course thereof.
For purposes of this Section 11.E.iii), the term "Contest"
shall refer only to a Contest relating to income Taxes
payable with respect to a Post-Sale Year.
iv) At or prior to Closing, Unifrax shall execute a Power of
Attorney mutually agreeable authorizing Seller to
represent the Unifrax Group with respect to income taxes
for which Seller is liable in accordance with this Section
11.
F. Section 338 Election.
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i) After the Closing Date, Buyer and Seller shall make an
election under Section 338(h)(10) of the Code (and any
comparable election under state or local tax law) with
respect to the acquisition of Unifrax by Buyer. Buyer and
Seller shall cooperate fully with each other in the making
of such election, and the portion of the Purchase Price
affected by such election shall be allocated by the
parties in accordance with principles of Schedule A
attached hereto and in accordance with Form 8594 under
Section 1060 of the Code.
ii) Buyer will then be responsible for preparing and filing
the Section 338(h)(10) Election, and will submit the forms
and information schedules necessary to make the Section
338(h)(10) Election to Seller for Seller's signature no
later than 60 days prior to the due date for such
Election. Seller shall sign such Section 338(h)(10)
Election and return it to Buyer within 30 days after
receiving it, unless Seller object as provided below.
Seller and Buyer will file all federal tax returns in a
manner consistent with the Section 338(g) and (h)(10)
Elections. The forms and information schedules shall be
subject to the approval of the Seller, which approval
shall not be unreasonably withheld. If Seller objects to
the forms or the information schedules, they must notify
Buyer within 30 days after they receive the forms and
information schedules.
12. OBLIGATIONS PENDING THE CLOSING DATE. The parties agree that until the
Closing Date except as otherwise mutually agreed in writing between the
parties:
A. Access and Information. From the date hereof until the Closing
Date or, if earlier, the date of termination of this Agreement
pursuant to Section 18, Seller shall, and shall cause the members
of the Unifrax Group to, afford to Buyer's officers, employees,
accountants, counsel and other authorized representatives access
for the purpose of making presentations to employees to discuss
Buyer and its general plans for the business. Seller shall have
the right to be present during all such visits. From the date
hereof until the Closing Date or, if earlier, the date of
termination of this Agreement pursuant to Section 18, Seller
shall, and shall cause members of the Unifrax Group to afford to
Buyer's officers, employees, accountants, counsel and other
authorized representatives reasonable access to the records and
property of the Unifrax Group. Buyer agrees to cooperate with
Seller so as not to cause a disruption of the conduct of
Unifrax's business.
B. Conduct of Business. Except as otherwise provided in this
Section 12, the members of the Unifrax Group will i) conduct
their business only in the ordinary course, except that the
Unifrax Group in order to reduce bad debt exposure may reasonably
limit credit to customers, expedite collections of any
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overdue accounts or notes receivables or elect not to purchase or
manufacture inventory where levels of such inventory may become
obsolete as of the Closing Date; ii) keep in full force and
effect their corporate existence; iii) comply with all Material
Contracts and other agreements by which any of them are bound;
and iv) use reasonable efforts to retain their employees and
maintain their business relationships with customers and
suppliers.
Without the prior written consent of Buyer (which consent will
not be unreasonably withheld), the Unifrax Group will not i)
enter into any agreement or commitment (including any
non-competition agreements) not in the ordinary course of
business; ii) incur any indebtedness, except for accounts payable
and accrued expenses which are included in the definition of
Closing Net Working Capital; iii) make any new commitments for
capital expenditures exceeding Five Hundred Thousand Dollars
($500,000) in the aggregate or One Hundred Thousand Dollars
($100,000) per item or add additional projects to Schedule M.
(Capital Projects listed on Schedule M or included in the Unifrax
Business Plan on the date hereof shall continue unless otherwise
agreed); iv) enter into any Material Contract other than sales
contracts or commitments in the ordinary course, with a remaining
term or commitment of (13) thirteen months or less and less than
two hundred thousand dollars ($200,000), or purchase contracts or
commitments for capital expenditures for capital projects listed
on Schedule M or included in the Unifrax Business Plan; v) take,
agree to take or permit any member of the Unifrax Group to take
any action or do or permit to be done anything in the conduct of
the business of any member of the Unifrax Group which would
breach any of the terms or provisions of this Agreement or would
cause any of the representations of Seller contained herein to be
untrue in any material respect; or vi) authorize any of, or
commit or agree to take any of, the actions set forth in this
Section 12.B.
C. Maintenance of Property. The Unifrax Group will i) use, operate
and maintain in all material respects all their real property and
personal property as presently used, operated and maintained
except for depletion, depreciation, ordinary wear and tear and
damage by unavoidable casualty; and ii) maintain their records in
the usual, regular and ordinary manner consistent with past
practices.
D. Compensation. Except for increases in the ordinary course of
business consistent with past practices or pursuant to the terms
of any collective bargaining agreement, the Unifrax Group will
refrain from granting any increase in the compensation or rate of
compensation payable or to become payable to any of their
employees.
E. Schedules. Seller will advise Buyer in writing of additions or
changes to the schedules to this Agreement (hereinafter referred
to collectively as the "Schedule Amendments") which Seller in
their good faith judgment believe are
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required in order that the Schedules reflect i) events not
otherwise in breach of this Section 12 occurring since the date
of the Agreement or ii) facts or circumstances which, to the best
of Seller's knowledge, were not known by Seller at the date of
the Agreement.
F. Cash and Securities. Seller may, at their sole discretion from
time to time prior to the Closing Date, cause the members of the
Unifrax Group to dividend or otherwise pay to members of the
Seller Group, any cash or marketable securities held by the
Unifrax Group.
G. Subsidiary Actions. Seller will cause the Unifrax Group not to
i) authorize or issue other than to members of the Seller Group
or the Unifrax Group in accordance with this Agreement or the
attached Schedules any shares, warrants, notes, debentures or
other securities, instruments convertible or exchangeable into
securities of any member of the Unifrax Group, or rights or
options to acquire any of the foregoing, ii) amend or change
their certificates of incorporation, by-laws or comparable
governing instruments except as required by law, or iii) make
distributions, payments or dividends to the Seller Group or take
any corporate action other than in the ordinary course, except as
required by law or this Agreement or in order to transfer cash
and marketable securities to the Seller Group, or to repay any
intercompany accounts and notes receivable or payable with the
Seller Group or within the Unifrax Group.
H. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its
best efforts to take, or cause to be taken, all actions and do or
cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective,
as soon as reasonably practicable, the transactions contemplated
by this Agreement. Without limiting the foregoing, Buyer and
Seller shall promptly file any Notification and Report Forms and
related materials as may be required to be filed under the Hart
Scott Rodino Antitrust Improvements Act of 1976, as amended (the
"H-S-R Act"), shall use reasonable efforts to obtain an early
termination of the applicable waiting period and shall promptly
make any further filings pursuant thereto as may be necessary to
facilitate the consummation of the transactions contemplated by
this Agreement. Seller shall reimburse Buyer for 1/2 of any fee
paid by Buyer to the appropriate U.S. Government agency to file
the said Notification and Report Forms.
I. Negotiations. Other than the sale or transfer of all or part of
the Discontinued Operations, neither the Seller nor any member of
the Unifrax Group shall, directly or indirectly (by merger,
reorganization, recapitalization, stock issuance or transfer or
otherwise), offer to sell or dispose of, negotiate to sell, or
dispose of, or have discussions with third parties with respect
to the sale or disposition of the assets, properties, capital
stock or control of any member of the Unifrax Group or its assets
to or with any third party other than the sale or
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use of inventories or scrap or obsolete properties in the
ordinary course of business. Seller may complete its pending
Registration Statement filed with the Securities and Exchange
Commission but will not go effective with that Registration
Statement, commence any marketing of any securities or print any
"Red Herrings".
J. BPX, as a shareholder of Unifrax, shall vote all of its shares of
Unifrax in favor of the Merger.
13. NON-COMPETITION AND SEPR AGREEMENTS. As of the Closing Date, A) Seller
shall cause The British Petroleum Company p.l.c. ("BP") to enter into a
five year Noncompetition Agreement with the Unifrax Group substantially
in the form attached hereto as Exhibit 3; and B) Buyer shall, without
any further action on the part of Seller or Buyer, be deemed to be bound
by the following agreements dated as of February 28, 1996 among others,
BP, Unifrax, and Societe Europeene des Produits Refractaires ("SEPR").
i) the Covenant Not To Compete;
ii) the Product Distribution Agreement;
iii) the Distributed Product License Agreement;
iv) the License Agreement;
v) the Conversion Agreement;
vi) the XPE License Agreement; and
vii) the Trademark License And Consent Agreement.
14. INDEMNIFICATION.
A. Indemnification by Unifrax. Unifrax hereby agrees to release
Seller from and indemnify, defend and save and hold harmless
("Indemnify") Seller, the Seller Group and their respective
officers, directors, stockholders, employees and representatives
and all of their respective heirs, legal representatives,
successors and permitted assigns (the "BP Group"), exclusive of
the Unifrax Group, and each of them, and to cause the Unifrax
Group to so Indemnify them, against any and all claims, damages,
losses, expenses, costs, penalties, liens, fines, assessments,
obligations or liabilities of any kind, including reasonable
attorneys' fees and court costs (exclusive of any time, overhead
charges or other non-cash expenses for Unifrax or a party's
employees necessary to monitor, manage, defend or otherwise be
involved with such or to comply with or in furtherance of the
provisions of this Section 14. or Schedule Z) (collectively
"Losses" and individually "Loss") to the extent arising from or
attributable to the operations of the Unifrax Group after the
Closing Date including without limitation those arising under
Environmental Laws such as CERCLA, any federal or state workers
compensation laws or any other
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foreign, federal, state or local laws or regulations, or any
contract, warranty, tort, or other theory of law; provided,
however, that such Losses shall be excluded from any
Indemnification provided by Unifrax pursuant to this Agreement,
and Unifrax shall not be obligated to Indemnify the BP Group with
respect to any Losses to the extent to which any member of the
Buyer Group is entitled to be Indemnified by Seller pursuant to
Section 14.B. In addition, Unifrax will Indemnify Seller against
any Losses which Seller may incur to the extent arising from or
attributable to any breach or failure by Buyer, or Buyer's
failure to perform any provision, representation, warranty,
covenant or agreement in this Agreement or any agreement or
instrument delivered pursuant hereto. Further, Unifrax hereby
agrees to Indemnify Seller (i) with respect to any claims,
obligations or liabilities of any kind under the Assumed Plans
relating to events with respect to U.S. Employees from and after
the Closing Date, and, after the transfer of assets described in
Section 7.C.(ii), above, with respect to any Mirror Plans
established, and (ii) with respect to any COBRA obligations that
may arise as a result of the discontinuation by Unifrax of any
medical benefits program contemporaneous with the Closing Date.
B. Seller's Indemnification of Buyer. Subject to provisions of this
Section 14, each Seller jointly and severally, agrees to
Indemnify Buyer (including, after the Closing Date, the Unifrax
Group) and their respective officers, directors, stockholders,
(other than members of the BP Group) employees and
representatives and all of their respective heirs, legal
representatives, successors and permitted assigns (the "Buyer
Group") against any Losses which any member of the Buyer Group
may incur to the extent arising from or attributable to:
i) all liabilities or obligations of the Discontinued
Operations as listed on Schedule E, any liabilities
retained by Seller pursuant to Section 7.C.ii), and all
liabilities and obligations for breach of Section 5.L.
ii) liabilities for wrongful death or personal injury (and any
ancillary claims) allegedly caused by exposure prior to
the Closing Date to refractory ceramic fiber products
manufactured by the Unifrax Group or its predecessors
pursuant to the provisions of the attached Schedule Z.
For the purposes of this Section 14.B.ii) and Schedule Z:
(1) threatened or actual claims, litigation, actions or
proceedings for wrongful death or personal injury (and any
ancillary claims) allegedly caused by exposure prior to,
but not after, the Closing Date, are referred to as
"Pre-Closing Matters"; (2) Pre-Closing Matters with
respect to which a suit is filed or legal procedures are
otherwise commenced, or with respect to which Seller,
Unifrax or any of their affiliates have received written
notice prior to the Closing Date are
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referred to as "Pre-Closing Litigation"; (3) threatened or
actual claims, litigation, actions or proceedings for
personal injury or wrongful death (and any ancillary
claims) allegedly caused by exposure to refractory ceramic
fiber products in part before and in part after Closing
Date are referred to as "Joint Matters" and (4) punitive
damages to the extent arising from acts or omissions of
Seller or Unifrax prior to the Closing date are referred
to as "Seller Punitive Damages".
Each Seller shall jointly and severally Indemnify the
Buyer Group against one hundred percent (100%) of the
Losses arising from or attributable to Pre-Closing
Litigation. Each Seller shall jointly and severally
Indemnify the Buyer Group against eighty percent (80%) of
the Losses, other than Seller Punitive Damages, arising
from or attributable to Pre-Closing Matters which are not
Pre-Closing Litigation; provided, however, that once Buyer
Group has incurred Three Million Dollars ($3,000,000) (the
"Cap") in Losses from Pre-Closing Matters not subject to
Indemnification from Seller, each Seller shall, jointly
and severally, Indemnify the Buyer Group against one
hundred percent (100%) of the Losses from Pre-Closing
Matters in excess of the Cap. Each Seller shall, jointly
and severally, Indemnify the Buyer Group against one
hundred percent (100%) of Seller Punitive Damages. The
eighty percent limit and the Cap do not apply to Losses
from Pre-Closing Litigation or Losses which are Seller
Punitive Damages. In the case of Joint Matters this
Indemnity only applies to the portion of the alleged
injurious exposure which occurred prior to the Closing,
and Losses shall be allocated between Seller and Buyer in
accordance with Schedule Z.
Unifrax agrees to maintain a Product Stewardship Program
consistent with the provisions of the attached Schedule S.
The Product Stewardship Program shall consist of at least
the following elements, as further described in Schedule
S: maintenance of handling procedures; research, as
reasonably appropriate, into health effects and safe
handling; continuing research, as reasonably appropriate,
into safer alternative products; informing customers and
others who may come into contact with refractory ceramic
fiber products about safe handling; and effective steps,
as reasonably appropriate, to ensure that the program is
implemented throughout the distribution chain of the
products. To the extent that Unifrax fails to maintain a
Product Stewardship Program consistent with Schedule S
with respect to refractory ceramic fiber products, no
indemnification shall be applicable under this Section
14.B.ii) with respect to any wrongful death or personal
injury to the extent caused by such failure. However,
Unifrax may modify the elements or procedures of the
Product Stewardship
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Program in a commercially reasonable manner without
affecting the right of the Buyer Group to indemnification
under this Section 14.B.ii).
iii) liabilities and obligations with respect to workers'
compensation claims by or on behalf of active or former
employees of the Unifrax Group for traumatic or
occupational injuries (including exposure claims)
occurring prior to the Closing Date. In the event that
the date of injury cannot be readily determined, Buyer and
Seller agree that the controlling date of the event shall
be determined by the date of occurrence established or
adjudicated by the Industrial Board, Commissioner, Bureau
or other body having jurisdiction over the workers'
compensation claim in question. For the avoidance of
doubt, tort claims by active or former employees of the
Unifrax Group for exposure to refractory ceramic fiber
products shall be governed by Section 14.B.ii).
iv) all liabilities or obligations and Environmental Losses
arising out of the transport storage, or disposal before
the Closing Date of Hazardous Substances or other wastes
to or on any real property other than real property owned
or leased by the Unifrax Group as of the Closing Date
including, without limitation, the Shulman Site (St.
Joseph County, Indiana), the Kline Road Site (South Bend,
Indiana) and the PCB Treatment Site (Kansas City, KS &
MO).
v) Except as provided in clause (c) below all Environmental
Losses and all the amounts reasonably required to be
expended to satisfy liabilities and obligations for
Remedial Actions and Environmental Compliance Actions
required by Environmental Law in effect and as interpreted
as of the Closing Date, as applied to conditions, events,
acts, occurrences or omissions occurring or existing at
the Facilities as of or prior to the Closing Date or to
the operations of the Unifrax Group prior to the Closing
Date, including without limitation:
(a) Seller will undertake for their own account all
required Remedial Actions for The Remedial Program
as defined in the Order On Consent for Site #932102
(Sanborn, New York) entered into between the New
York Department of Environmental Conservation and
Unifrax dated December 23, 1991.
(b) Costs connected to the friable asbestos referred to
in the just completed consultants report on
asbestos prepared for Unifrax.
(c) Buyer shall be responsible for, and Seller shall
not be liable for Indemnification of Buyer for, any
Remedial Actions (other than
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as provided in Subsection (b) above), resulting
from a single occurrence or a series of related
occurrences that are discovered during the first
seven (7) years after the Closing Date if the
expended amount is One Hundred Thousand Dollars
($100,000) or less per site (excluding the Sanborn,
New York site).
(d) Seller's liability for Remedial Actions shall cease
with respect to occurrences discovered after seven
(7) years after the Closing Date.
vi) any breach by Seller of or failure to perform by Seller of
any provision, representation, warranty, covenant or
agreement in this Agreement or any agreement or instrument
delivered pursuant hereto;
vii) liabilities to customers for repair or replacement of
defective or off-spec product manufactured by the Unifrax
Group within one (1) year prior to the Closing;
viii) any claims, obligations, or liabilities of any kind with
respect to any former U.S. Employees including retirees of
the Unifrax business who on or after the Closing Date do
not become active employees ofUnifrax;
ix) any claims, obligations or liabilities of any kind
relating to events under the Benefit Plans with respect to
U.S. Employees prior to the Closing Date, except that with
respect to the applicable medical plans Seller shall only
be responsible for services rendered and costs incurred
prior to the Closing Date under any applicable medical
plans; and
x) 50% of the cost of any settlement, judgment or reasonable
legal fees connected to the matter on Schedule J, entitled
PPG Industries Inc. v. Carlson Manufacturing Company.
Any Indemnification payment made by the Seller on account of a
Loss of the Buyer Group or any of the Unifrax Group shall be
accounted for as an adjustment to the Purchase Price of the
Shares.
C. Additional Environmental Indemnification.
i) Environmental Compliance Actions. Seller shall undertake
at their expense prior to or after the Closing Date such
Environmental Compliance Actions as may be required by
Environmental Law in effect and as interpreted as of the
Closing Date as applied to conditions, events,
occurrences, acts or omissions occurring or existing
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prior to the Closing Date, irrespective of whether or not
such conditions, events, occurrences, acts or omissions
are listed in any Schedule hereto or in any Consultants'
Reports. All work associated with Environmental
Compliance Actions shall be conducted by Seller or
Seller's contractors in a workmanlike manner. The parties
shall cooperate in good faith in the planning and
execution of any such work to minimize costs, so far as is
practicable.
ii) Participation Permitted. Either party to this Agreement
shall have the full right, at its own expense, to
participate, through counsel or otherwise, in all meetings
and proceedings with adverse parties or governmental
authorities pertaining to claims for Environmental Losses,
or compliance with Environmental Laws. This right shall
not be interpreted to cause prejudice to either party in
the case of claims between them.
iii) Cooperation. The parties shall cooperate with respect to
the undertaking of their mutual obligations pursuant to
this Section 14.C, including providing one another
reasonable access to relevant records and officers and
employees with knowledge of the matters at issue, and
shall inform one another in reasonably prompt fashion of
all significant developments concerning conditions or
actions giving rise to claims for Indemnification
hereunder.
iv) Access. Seller and their representatives shall have the
right, at reasonable times subsequent to Closing and upon
reasonable prior notice, to enter the Facilities for the
purpose of undertaking activities relating to its
obligations pursuant to this Section 14.C, so long as such
entry or activity does not unreasonably interfere with the
operations at the Facilities.
v) Work. All activities relating to the parties' obligations
pursuant to this Section 14.C must be undertaken in a
manner in which a prudent business person acting in a
commercially reasonable manner would undertake such work,
endeavoring to minimize interruptions of operations. Any
work on the Facilities by Seller or their contractors
shall be subject to such reasonable work safety rules as
are normally imposed on outside contractors by Buyer.
vi) Emergencies. Nothing in this Section 14.C shall prevent
either party from (a) taking any reasonable and prudent
interim measures in the event of any imminent and
substantial endangerment to human health, welfare or the
environment, without prejudice to that party's right to
seek Indemnification therefor under this Agreement; (b)
taking any reasonable action for which that party does not
elect to seek
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Indemnification, in whole or in part, under this
Agreement; and (c) taking any action required or directed
by any governmental authority of competent jurisdiction,
without prejudice to that party's right to seek
Indemnification therefor under this Agreement.
vii) Permit Transfer. Seller shall take all actions necessary
to comply with all applicable requirements of
Environmental Laws concerning the transfer of property,
assets or a business in connection with the transactions
contemplated by this Agreement. Seller and Buyer shall
provide or cause to be provided all required notices and
reports to the appropriate permitting bodies with respect
to any Environmental Permits that may need to be
transferred or modified, in order to effectuate the
issuance, transfer or modification of all such
Environmental Permits to or for the benefit of Buyer in
connection with the transactions contemplated by this
Agreement as soon as reasonably practicable. Sellers shall
use reasonable efforts to assist in any required transfer
of Environmental Permits. In the case of any required
Environmental Permit not issued, transferred or modified
to or for the benefit of Buyer (by operation of law or
otherwise) in form and substance the same as that held by
Seller or the appropriate member of the Buyer, or
otherwise reasonably satisfactory to Buyer by the Closing
Date, Seller authorizes Buyer to temporarily operate under
and utilize the existing Environmental Permits, to the
extent permitted by law, after the Closing Date and until
such required Environmental Permit is so issued,
transferred or modified.
D. Exclusive Remedy. Any claim or cause of action based on,
relating to or arising out of this Agreement, or any of the other
transactions contemplated under this Agreement or otherwise in
respect of the Unifrax Group which is the subject of the
Indemnifications hereunder must be brought by either party in
accordance with the provisions and applicable limitations of this
Sections 14. and 22, whether such claim arises out of any
contract, tort or otherwise. Except as otherwise provided in
this Agreement, each party hereby releases, remises and forever
discharges the other from any and all suits, legal or
administrative proceedings, claims, demands, damages, losses,
costs, liabilities, interest, or causes of action whatsoever in
law or in equity, known or unknown, which such party might now or
subsequently may have based on or relating to, or arising out of
the subject matter of this Agreement, including without
limitation the subject matter of the Indemnification hereunder
regarding Seller's use, maintenance, ownership and operation of
the Unifrax Group, their business, assets and liabilities or the
condition, quality, status or nature of the Unifrax Group, their
business, assets and liabilities, including, without limitation,
rights to contribution under CERCLA, or analogous state, local or
foreign law or regulation, breaches of statutory or implied
warranties or otherwise, nuisance or other tort actions, and
common law rights of
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<PAGE> 54
contribution; provided, however, that Buyer, on behalf of the
Buyer Group, and Seller, on behalf of the BP Group, retain all
rights of Indemnity set forth in this Agreement and to equitable
remedies under law to enforce the terms hereof.
E. General Provisions. In the case of any claim for Indemnification
brought under this Section 14:
i) The party entitled to Indemnification (the "Indemnified
Party") shall notify the other party (the "Indemnifying
Party") of its obligation to provide Indemnification with
reasonable promptness of its discovery of any matter
giving rise to such claim.
ii) With respect to any third-party claim or action or need
for Remediation Action pursuant to Section 14.B.iv), the
Indemnifying Party shall be entitled to assume the defense
thereof with counsel, or undertake the Remedial Action
with contractors or personnel, reasonably satisfactory to
the Indemnified Party; and subsequent to such assumption
of defense, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in
connection with the defense thereof.
iii) The Indemnified Party will cooperate with the Indemnifying
Party in the defense of any such action, and shall furnish
any documents or endeavor to make available any witnesses
under its control.
iv) Buyer shall not be entitled to make a claim against Seller
under this Section 14 (other than for Covered Losses
including Joint Matters, or where the delay in making a
claim would prejudice the rights of a third party) unless
and until a) Buyer shall have provided Seller written
notice of such default; and b) Seller shall have failed to
cure such default within thirty (30) days after Seller's
receipt of Buyer's notice; and
v) Seller shall not be entitled to make a claim against Buyer
under this Section 14 (other than for Covered Losses
including Joint Matters, or where the delay would
prejudice the rights of a Third Party) unless and until a)
Seller shall have provided Buyer written notice of
default; and b) Buyer shall have failed to cure such
default within thirty (30) days after Buyer's receipt of
Seller's notice.
vi) The amount which an Indemnifying Party is required to pay
to, for, or on behalf of the Indemnified Party pursuant
to this Section 14 shall be adjusted (including, without
limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of such Indemnified
Party
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in reduction of the related Loss. Amounts required to be
paid, as so reduced, are hereafter sometimes called an
"Indemnity Payment." If an Indemnified Party shall have
received or shall have had paid on its behalf an Indemnity
Payment in respect to a Loss and shall subsequently
receive insurance proceeds in respect of such Loss, then
the Indemnified Party shall pay to the Indemnifying Party
the amount of such insurance proceeds or, if lesser, the
amount of the Indemnity Payment.
vii) Except with respect to third-party (including but not
limited to governmental agencies) claims or actions, any
recovery from the Indemnifying Party shall not include
punitive damages, consequential damages, lost profits or
rents, or diminution of the value of real property or
business interruption losses incurred by the Indemnified
Party.
F. Attorney's Fees. In connection with any litigation, arbitration
or other dispute resolution arising out of this Agreement or to
enforce any claim pursuant to this Section 14 hereof, the
prevailing party shall be entitled to recover from the
nonprevailing party its reasonable attorney's fees and costs, on
appeal or otherwise.
G. Time Limitations for Indemnity. Any claim under this Section 14
for Indemnity arising under or out of this Agreement must be
brought with reasonable specificity in writing delivered to the
Indemnifying Party at the notice address set forth in Section 19
below as follows or shall be forever barred:
i) any claim under Section 11. or any claims for Indemnity
under Section 14.B.vi) related to breaches of
representations and warranties or covenants made pursuant
to Section 5.B. or 5.D., Sections 14.B.i), 14.B.ii),
14.B.iii) 14.B.iv, 14.B.v)(a), 14.B.viii) or 14.B.ix)),
may be made at any time;
ii) any claims for Indemnity under Section 14.B.vi) related
solely to breaches of representations or warranties made
pursuant to Section 6.B., Section 14.C. must be made
within five (5) years of the Closing Date;
iii) except as provided in subsection i) of this Section 14.G.,
claims for Indemnity under Section 14.B.v) must be made
within seven (7) years of the Closing Date;
iv) any claims for Indemnity under Sections 14.B.vi) (except
as provided in Subsections i), ii) and v) of this Section
14.G) or claims for Indemnity
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under Section 14.B.vii) must be made within eighteen (18)
months after the Closing Date; and
v) any claims for Indemnity under Section 14.B.vi) related to
tax matters must be made prior to the expiration of the
applicable statute of limitations.
H. Buyer's Knowledge. Buyer shall not have any remedy hereunder for
a breach of representation or warranty to the extent Seller can
demonstrate by clear and convincing evidence that (i) the Buyer
(with respect to knowledge obtained prior to the date hereof) or
the Buyer and the Buyer's representatives (with respect to
knowledge obtained after the date hereof) had actual knowledge of
such breach prior to the Closing Date, and (ii) Buyer did not
inform Seller in writing of such breach prior to the Closing
Date.
I. Monetary Limitation for Breach of Warranty. Neither party shall
have a right to Indemnification under this Section 14 with
respect to any Loss arising out of a breach of representation or
warranty under this Agreement if the individual Loss amounts to
One Hundred Thousand Dollars ($100,000) or less in each case (the
"DeMinimus Amount"). In addition, neither party shall have a
right to Indemnification under this Section 14 with respect to
any Losses exceeding such DeMinimus Amount arising out of any
breach of representation or warranty under this Agreement until
the aggregate of all individual Losses which exceed the DeMinimus
Amount incurred or sustained by the party seeking Indemnification
exceeds One Million Five Hundred Thousand Dollars ($1,500,000)
and then all Losses over the DeMinimus Amount incurred after
reaching such threshold of One Million Five Hundred Thousand
Dollars ($1,500,000) shall be recoverable in full. The
limitations of this Section 14.I shall not be applicable to
claims for Indemnity under Sections 14.B.i), 14.B.ii), 14.B.iii),
14.B.iv), 14.B.v) or Section 14.B.vi) related to breaches of
representations and warranties made pursuant to Sections 5.D.,
14.B.viii) and 14.B.ix).
J. Limitation of Liability. Subject to the next sentence, Seller's
aggregate liability for Indemnification with respect to all
Losses shall in no event exceed an amount equal to Seventy Five
Million Dollars ($75,000,000). The preceding sentence shall not
limit Seller's liability for Indemnification under Sections
14.B.i), 14.B.ii), 14.B.iii) or 14.B.iv).
K. Assumptions of Buyer Obligations. After the Closing all
obligations and liabilities of Buyer will be assumed by Unifrax
which shall become the sole source of Seller's recourse. Buyer
will provide Seller with Unifrax's unqualified assumption of all
such liabilities and obligations, in a form reasonably
satisfactory to Seller.
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15. BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to close under this
Agreement is subject to the fulfillment, on the Closing Date, of each of
the following conditions (except to the extent that Buyer shall have
hereafter agreed in writing to waive one or more of such conditions):
A. Compliance with Agreements. Seller shall have performed and
complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or
complied with by Seller prior to the Closing Date.
B. Representations and Warranties. The representations and
warranties of Seller contained in this Agreement, as updated by
Seller in accordance with Section 12.E, that are qualified as to
materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects on
and as of the Closing Date. The disclosures set forth in any
such updates will not individually or in the aggregate reflect
events, facts or circumstances which have a Material Adverse
Effect on the Unifrax Group taken as a whole.
C. Litigation. There shall not be pending any litigation or
proceeding initiated or threatened by any government or agency
thereof, to challenge the acquisition by Buyer of the Shares, or
restrain or prohibit or otherwise interfere with the consummation
of the transactions contemplated by this Agreement.
Threatened litigation, with respect to the United States, shall
mean a recommendation to initiate litigation or proceedings by
the Director, Bureau of Competition to the Federal Trade
Commission or such recommendation from a Deputy Assistant
Attorney General to the United States Department of Justice
Assistant Attorney General for Antitrust.
Notwithstanding the foregoing, Buyer agrees to take any action
deemed necessary to resolve proceedings relating to antitrust law
that may be so initiated or threatened prior to Closing;
provided, however, that nothing in the preceding clause shall
obligate Buyer to agree to divest, dispose of, hold separate,
license or otherwise limit Buyer's ownership of and entitlement
to any business or assets of the Unifrax Group or Buyer or any of
its subsidiaries or affiliates.
D. Governmental Consents. The applicable waiting period under the
H-S-R Act and any extension thereof shall have expired.
E. Financing. Buyer shall have obtained debt financing upon terms
reasonably satisfactory to Buyer, in amounts sufficient to permit
Buyer to consummate the transactions contemplated hereby.
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F. Insurance. Unifrax shall have obtained a commitment from a
reputable liability insurance company to provide product
liability insurance to Unifrax on substantially the same terms
outlined in the insurance materials previously provided to Buyer.
G. Board Approval. The transactions contemplated by this Agreement
shall have been approved by the Advisory Board of Kirtland
Capital Partners on or before June 14, 1996.
H. Sanborn Property. Legal title to the Sanborn, New York property
shall be transferred by Unifrax to a member of the BP Group
pursuant to a Quit-claim Deed reasonably satisfactory to Buyer.
16. SELLER'S OBLIGATION TO CLOSE. The obligation of Seller to close under
this Agreement is subject to the fulfillment on the Closing Date of each
of the following conditions (except to the extent that Seller shall have
hereafter agreed in writing to waive one or more of such conditions):
A. Litigation Affecting Closing. There shall not be pending any
litigation or proceeding initiated by any government or agency
thereof to challenge the sale by Seller of the Shares, or
restrain or prohibit or otherwise interfere with the consummation
of the transactions contemplated by this Agreement.
B. Compliance with Agreement. Buyer shall have performed and
complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or
complied with by Buyer prior to the Closing Date.
C. Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date.
D. Governmental Consents. The applicable waiting period under the
H-S-R Act shall have expired.
17. RECORDS AND COOPERATION. After the Closing Date, Seller and its
accountants, attorneys and agents shall have reasonable access to the
books and records of the Unifrax Group related to the period up to and
including the Closing Date, and Buyer shall notify or cause the Unifrax
Group to notify Seller at least thirty (30) days prior to the transfer
or disposition of any portion thereof for ten (10) years from the
Closing Date and shall allow Seller to make copies or to take possession
of any such records designated for destruction. Buyer shall grant, and
shall cause the Unifrax Group to grant, all such assistance, including
access without subpoena to interview employees,
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as Seller may reasonably request in connection with any claims,
litigation or proceedings to which any member of the BP Group is a
party. Seller will reimburse the Unifrax Group for any out-of-pocket
costs reasonably incurred in connection with such assistance. After the
Closing Date, Buyer and its accountants, attorneys and agents shall have
reasonable access to the books and records pertaining to the Unifrax
Group retained by any member of the BP Group related to the period up to
and including the Closing Date, and Seller shall notify Buyer at least
thirty (30) days prior to the transfer or disposition of any portion
thereof for ten (10) years from the Closing Date and shall allow Buyer
to make copies or to take possession of any such records designated for
destruction. Seller shall grant and shall cause the BP Group to grant
all such assistance, including access without subpoena to interview
employees, as Buyer may reasonably request in connection with any
claims, litigation or proceedings to which the Buyer is a party. Buyer
will reimburse Seller or the BP Group for any out-of-pocket costs
reasonably incurred in connection with such assistance.
18. TERMINATION RIGHTS.
A. Termination. This Agreement may be terminated at any time prior
to the Closing Date as follows, and in no other manner:
i) By mutual consent of Buyer and Seller;
ii) By any party, if the Closing Date shall not have occurred
on or before October 31, 1996 (or such later date as may
have been agreed upon in writing by the parties), other
than as a result of such party's default or intentional
delay hereunder;
iii) By Seller, if not then in material breach of this
Agreement, if Buyer are in material breach of this
Agreement and Buyer fails to cure such breach within ten
(10) days of its receipt of written notice thereof from
Seller;
iv) By Buyer, if not then in material breach of this
Agreement, if Seller is in material breach of this
Agreement and Seller fails to cure such breach within ten
(10) days of its receipt of written notice thereof from
Buyer; or
v) By any party having a specific right to terminate pursuant
to a specific provision of this Agreement.
B. Effect of Termination. If this Agreement is rightfully
terminated other than as a result of a party's material breach,
no party, nor any affiliate thereof, shall have any liability for
damages as a result of the termination. Buyer, on the one hand,
or Seller, on the other, rightfully terminating this Agreement as
a result
50
<PAGE> 60
of the other party's or parties' material breach shall retain any
claim it may have for damages arising from such breach.
C. Procedure and Confidentiality. In the event of the termination
and abandonment of this Agreement by Seller or Buyer pursuant to
this Section 18, written notice thereof shall forthwith be given
to the other party. If the transactions contemplated by this
Agreement are terminated as provided herein:
i) Each party will redeliver all documents, work papers and
other material of any other party relating to the
transactions contemplated hereby, whether so obtained
before or after the execution hereof, to the party
furnishing the same;
ii) All proprietary information received by any party hereto
with respect to the business of any other party or its
subsidiaries shall be treated in accordance with the
provisions of the Confidentiality Agreement between Buyer
and BP America Inc. (the "Confidentiality Agreement"),
which shall survive the termination of this Agreement; and
iii) No party to this Agreement will have any liability under
this Agreement to the other except (a) as stated in this
Section 18, (b) for any willful breach of any provision of
this Agreement, and (c) as provided in the Confidentiality
Agreement.
19. NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall given in
writing and delivered personally, faxed, or mailed first class, postage
prepaid, by one of the preceding methods, as follows:
If to Buyer:
Unifrax Holding Co.
2550 SOM Center Road
Suite 105
Willoughby Hills, OH 44094
If to Investment:
Unifrax Investment Corp.
2550 SOM Center Road
Suite 105
Willoughby Hills, OH 44094
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<PAGE> 61
If to Seller:
The Standard Oil Company
200 Public Square (11th floor)
Cleveland, Ohio 44114-2375
Attention: Corporate Secretary
Telecopy: 216/586-4535
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 19.
20. 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.
21. GENERAL.
A. Entire Agreement. This Agreement and the attached schedules and
exhibits 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 (other than the Confidentiality Agreement) including,
without limitation, the Stock Purchase Agreement dated June 9,
1996. NO REPRESENTATION, PROMISE, INDUCEMENT OR STATEMENT OF
INTENTION HAS BEEN MADE BY ANY PARTY WHICH IS NOT EMBODIED IN OR
SUPERSEDED BY THIS AGREEMENT, THE CONFIDENTIALITY AGREEMENT, OR
IN THE AGREEMENTS, SCHEDULES OR EXHIBITS REFERRED TO HEREIN, AND
EXCEPT AS PROVIDED IN SECTION 14.H NO PARTY SHALL BE BOUND BY OR
LIABLE FOR ANY INFORMATION NOT SO SET FORTH, WHETHER IN THE
OFFERING CIRCULAR FOR UNIFRAX FORWARDED TO BUYER BY CS FIRST
BOSTON CORPORATION, OR OTHERWISE. BUYER'S OBLIGATIONS UNDER THE
CONFIDENTIALITY AGREEMENT SHALL NOT SURVIVE THE CLOSING.
B. Successors and Assigns. This Agreement shall be binding on and
inure to the benefit of Seller and Buyer and their successors and
assigns.
C. 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
52
<PAGE> 62
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.
D. Headings/Counterpart. The section or paragraph 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.
22. DISPUTE RESOLUTION. The parties agree to use their best efforts to
settle any disputes pertaining to the validity, scope, performance
and/or enforcement of this Agreement. To this end, the parties agree to
consult and negotiate with each other in good faith and, recognizing
their mutual interests, attempt to reach a just and equitable resolution
satisfactory to both parties. If the parties cannot reach a resolution
of the dispute within thirty (30) days, either party may refer the
dispute to arbitration as set forth hereafter.
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<PAGE> 63
Except as specifically provided in the arbitration provisions set forth
in Section 3.C. or the attached Schedule Z, all disputes between the
parties hereto, pertaining to the validity, scope, performance and/or
enforcement of this Agreement, shall be finally settled by a single
arbitrator, who shall be a member of the Bar of the State of Ohio,
actively engaged in the practice of law, or a retired member of the Ohio
or federal judiciary, pursuant to the then-applicable commercial
arbitration rules of the Center For Public Resources Rules for
arbitration of business disputes. The arbitration proceeding shall be
held in Cleveland, Ohio, at such place as is selected by the Arbitrator.
The Arbitrator shall not have the authority to award any remedy or
relief that a court in the State of Ohio could not order or grant.
Judgment upon the award rendered by the Arbitrator may be entered by any
court having jurisdiction thereof. By execution and delivery of this
Agreement, the parties hereby irrevocably accept for themselves and as
to their respective property, generally and unconditionally, the
jurisdiction of the arbitrator described herein.
INTENDING TO BE LEGALLY BOUND, the parties have duly executed this
instrument the day and year first above written.
THE STANDARD OIL COMPANY BP EXPLORATION (ALASKA) INC.
By: By:
------------------------------ ------------------------------
Chris C. Clarke Chris C. Clarke
Title: Attorney In Fact Title: Attorney In Fact
BP AMERICA INC. UNIFRAX HOLDING CO.
By: By:
------------------------------ ------------------------------
Chris C. Clarke
Title: Attorney In Fact Title:
---------------------------
UNIFRAX CORPORATION UNIFRAX INVESTMENT CORP.
By: By:
------------------------------ ------------------------------
Chris C. Clarke
Title: Attorney In Fact Title:
---------------------------
54
<PAGE> 1
Exhibit 3.2
BY-LAWS
-------
OF
--
UNIFRAX INVESTMENT CORP.
------------------------
ARTICLE I
---------
Meetings of Stockholders
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of stockholders
shall be held at such time and place and on such date in each year as may be
fixed by the board of directors and stated in the notice of the meeting, for the
election of directors, the consideration of reports to be laid before such
meeting and the transaction of such other business as may properly come before
the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
stockholders shall be called upon the written request of the chairman of the
board of directors, the president, the directors by action at a meeting, a
majority of the directors acting without a meeting, or of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation
entitled to vote thereat. Calls for such meetings shall specify the purposes
thereof. No business other than that specified in the call shall be considered
at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, and except as
provided in Section 230 of the General Corporation Law of the State of Delaware,
written notice of each annual or special meeting stating the date, time, place
and purposes thereof shall be given by personal delivery or by mail to each
stockholder of record entitled to vote at or entitled to notice of the meeting,
not more than sixty days nor less than ten days before any such meeting. If
mailed, such notice shall be directed to the stockholder at his address as the
same appears upon the records of the Corporation. Any stockholder, either before
or after any meeting, may waive any notice required to be given by law or under
these By-Laws.
Section 4. PLACE OF MEETINGS. Meetings of stockholders shall
be held at the principal office of the Corporation unless the board of directors
determines that a meeting shall be held at some other place within or without
the State of Delaware and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation entitled to vote at
any meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business to be considered at such meeting; provided, however,
that no action required by law or by the Certificate of Incorporation or
<PAGE> 2
these By-Laws to be authorized or taken by the holders of a designated
proportion of the shares of any particular class or of each class may be
authorized or taken by a lesser proportion; and provided, further, that if a
separate class vote is required with respect to any matter, the holders of a
majority of the outstanding shares of such class, present in person or by proxy,
shall constitute a quorum of such class, and the affirmative vote of the
majority of shares of such class so present shall be the act of such class. The
holders of a majority of the voting shares represented at a meeting, whether or
not a quorum is present, may adjourn such meeting from time to time, until a
quorum shall be present.
Section 6. RECORD DATE. The board of directors may fix a
record date for any lawful purpose, including, without limiting the generality
of the foregoing, the determination of stockholders entitled to (i) receive
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, (ii)
receive payment of any dividend or other distribution or allotment of any
rights, or (iii) exercise any rights in respect of any change, conversion or
exchange of stock. Such record date shall not precede the date on which the
resolution fixing the record date is adopted by the board of directors. Such
record date shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days before the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, nor more than ten days after the date on which the
resolution fixing the record date for such written consent is adopted by the
board of directors, as the case may be.
If a record date shall not be fixed in respect of any such
matter, the record date shall be determined in accordance with the General
Corporation Law of the State of Delaware.
Section 7. PROXIES. A person who is entitled to attend a
stockholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
ARTICLE II
----------
DIRECTORS
---------
Section 1. NUMBER OF DIRECTORS. Until changed in
accordance with the provisions of this section, the number of
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<PAGE> 3
directors of the Corporation, none of whom need be stockholders, shall be two
(2). The number of directors may be fixed or changed by amendment of these
By-Laws or by resolution of the board of directors.
Section 2. ELECTION OF DIRECTORS. Directors shall be elected
at the annual meeting of stockholders, but when the annual meeting is not held
or directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any stockholder entitled to vote at such election, but unless such
request is made the election may be conducted in any manner approved at such
meeting.
At each meeting of stockholders for the election of directors,
the persons receiving the greatest number of votes shall be directors.
Section 3. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 4. REMOVAL. All the directors, or all the directors of
a particular class, or any individual director may be removed from office,
without assigning any cause, by the vote of the holders of a majority of the
voting power entitling them to elect directors in place of those to be removed.
Section 5. VACANCIES. Vacancies in the board of directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is held. Stockholders entitled to elect directors shall have
the right to fill any vacancy in the board (whether the same has been
temporarily filled by the remaining directors or not) at any meeting of the
stockholders called for that purpose, and any directors elected at any such
meeting of stockholders shall serve until the next annual election of directors
and until their successors are elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office shall
constitute a quorum for filling a vacancy on the board. Whenever less than a
quorum is present at the time and place appointed for any meeting of the board,
a majority of those present may adjourn the meeting from time to time, until a
quorum shall be present. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the board.
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<PAGE> 4
Section 7. ANNUAL MEETING. Annual meetings of the board of
directors shall be held immediately following annual meetings of the
stockholders, or as soon thereafter as is practicable. If no annual meeting of
the stockholders is held, or if directors are not elected thereat, then the
annual meeting of the board of directors shall be held immediately following any
special meeting of the stockholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the stockholders, it shall be held at the
same place at which such stockholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the board of
directors shall be held at such times and places, within or without the State of
Delaware, as the board of directors may, by resolution, from time to time
determine. The secretary shall give notice of each such resolution to any
director who was not present at the time the same was adopted, but no further
notice of such regular meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by the chairman of the board, the president, any vice
president or any two members of the board of directors, and shall be held at
such times and places, within or without the State of Delaware, as may be
specified in such call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to attend the meeting. Such notice shall, in all
events, be deemed to have been properly and duly given if mailed at least
forty-eight hours prior to the meeting and directed to the residence of each
director as shown upon the secretary's records. The giving of notice shall be
deemed to have been waived by any director who shall attend and participate in
such meeting and may be waived, in a writing, by any director either before or
after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation, if any, for their services as
may be fixed from time to time by resolution of the board, and expenses of
attendance, if any, may be allowed for attendance at each annual, regular or
special meeting of the board. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of the executive committee or of any
standing or special
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<PAGE> 5
committee may by resolution of the board be allowed such compensation for their
services as the board may deem reasonable, and additional compensation may be
allowed to directors for special services rendered.
ARTICLE III
-----------
COMMITTEES
----------
Section 1. EXECUTIVE COMMITTEE. The board of directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the board of directors to serve during the pleasure of the board. If
the board of directors does not designate a chairman of the executive committee,
the executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the board of
directors, possess and may exercise all of the powers of the board of directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors or except as provided by law. The executive committee shall keep full
records and accounts of its proceedings and transactions. All action by the
executive committee shall be reported to the board of directors at its meeting
next succeeding such action and shall be subject to control, revision and
alteration by the board of directors, provided that no rights of third persons
shall be prejudicially affected thereby. Vacancies in the executive committee
shall be filled by the directors, and the directors may appoint one or more
directors as alternate members of the committee who may take the place of any
absent member or members at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of these By-Laws, the executive committee shall fix its own rules of
procedure and shall meet as provided by such rules or by resolutions of the
board of directors, and it shall also meet at the call of the chairman of the
board, the president, the chairman of the executive committee or any two members
of the committee. Unless otherwise provided by such rules or by such
resolutions, the provisions of Section 10 of Article II relating to the notice
required to be given of meetings of the board of directors shall also apply to
meetings of the members of the executive committee. A majority of the executive
committee shall be necessary to constitute a quorum. The executive committee may
act in a writing without a meeting, but no such
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<PAGE> 6
action of the executive committee shall be effective unless concurred in by all
members of the committee.
Section 3. OTHER COMMITTEES. The board of directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue the same at its pleasure. Each such committee shall
have such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the board of directors. The provisions of Section 1 and
Section 2 of this Article shall govern the appointment and action of such
committees so far as consistent, unless otherwise provided by the board of
directors. Vacancies in such committees shall be filled by the board of
directors or as the board of directors may provide.
ARTICLE IV
----------
OFFICERS
--------
Section 1. GENERAL PROVISIONS. The board of directors shall
elect a president, such number of vice presidents, if any, as the board may from
time to time determine, a secretary and a treasurer. The board of directors may
also elect a chairman of the board of directors and may from time to time create
such offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. The chairman of the board, if one be elected,
shall be, but the other officers need not be, chosen from among the members of
the board of directors. Any two or more of such offices, other than those of
president and vice president, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office during the pleasure of the board of directors, and, unless
sooner removed by the board of directors, until the annual meeting of the board
of directors following the date of their election and until their successors are
chosen and qualified. The board of directors may remove any officer at any time,
with or without cause. Subject to the provisions of Section 6 of Article V of
these By-Laws, a vacancy in any office, however created, shall be filled by the
board of directors.
ARTICLE V
---------
DUTIES OF OFFICERS
------------------
Section 1. CHAIRMAN OF THE BOARD. The chairman of the
board, if one be elected, shall be the chief executive officer of
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the Corporation, shall preside at all meetings of the board of directors and
meetings of stockholders and shall have such other powers and duties as may be
prescribed by the board of directors.
Section 2. PRESIDENT. The president shall be the chief
operating officer of the Corporation and shall exercise supervision over the
business of the Corporation and over its several officers, subject, however, to
the control of the board of directors. If no chairman of the board be elected,
the president shall be the chief executive officer of the Corporation. In the
absence of the chairman of the board, or if none be elected, the president shall
preside at meetings of stockholders. The president shall have authority to sign
all certificates for shares and all deeds, mortgages, bonds, agreements, notes,
and other instruments requiring his signature; and shall have all the powers and
duties prescribed by the General Corporation Law of the State of Delaware and
such others as the board of directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have
such powers and duties as may from time to time be assigned to them by the board
of directors, the chairman of the board or the president. At the request of the
president, or in the case of his absence or disability, the vice president
designated by the president (or in the absence of such designation, the vice
president designated by the board) shall perform all the duties of the president
and, when so acting, shall have all the powers of the president. The authority
of vice presidents to sign in the name of the Corporation certificates for
shares and deeds, mortgages, bonds, agreements, notes and other instruments
shall be coordinate with like authority of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the stockholders and the board of directors and shall make
proper record of the same, which shall be attested by him; shall have authority
to execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of stockholders and directors; shall produce on request at each
meeting of stockholders a certified list of stockholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the board of directors; and, in general, shall perform all duties incident
to the office of secretary and such other duties as may from time to time be
assigned to him by the board of directors, the chairman of the board or the
president.
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Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall have in charge all money, bills, notes,
deeds, leases, mortgages and similar property belonging to the Corporation, and
shall do with the same as may from time to time be required by the board of
directors. He shall cause to be kept adequate and correct accounts of the
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, stated capital and shares,
together with such other accounts as may be required; and he shall have such
other powers and duties as may from time to time be assigned to him by the board
of directors, the chairman of the board or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. Each other
officer shall perform such duties as the board of directors, the chairman of the
board or the president may prescribe. The board of directors may, from time to
time, authorize any officer to appoint and remove subordinate officers, to
prescribe their authority and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the board of
directors may deem sufficient, the board of directors may delegate, for the time
being, the powers or duties, or any of them, of such officers to any other
officer or to any director.
ARTICLE VI
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 1 INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he 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, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
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<PAGE> 9
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he 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 except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. INDEMNIFICATION AS A MATTER OF RIGHT. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. DETERMINATION OF CONDUCT. Any indemnification under
Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 1 and 2 of this Article VI. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
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Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this section.
Section 6. NONEXCLUSIVITY. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7. LIABILITY INSURANCE. The Corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this section.
Section 8. CORPORATION. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
Section 9. EMPLOYEE BENEFIT PLANS. For purposes of this
Article VI, references to any "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request
-10-
<PAGE> 11
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
Section 10. CONTINUATION. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE VII
-----------
CERTIFICATES FOR SHARES
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of full-paid shares owned, shall be issued to each
stockholder in such form as shall be approved by the board of directors. Such
certificates shall be signed by the chairman or vice-chairman of the board of
directors or the president or a vice president and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer; provided,
however, that the signatures of any of such officers and the seal of the
Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates shall
nevertheless be as effective in all respects as though signed by a duly elected,
qualified and authorized officer or officers, and as though the person or
persons who signed such certificate or certificates, or whose facsimile
signature or signatures shall have been used thereon, had not ceased to be an
officer or officers of the Corporation.
Section 2. REGISTRATION OF TRANSFER. Any certificate for
shares of the Corporation shall be transferable in person or by attorney upon
the surrender thereof to the Corporation or any transfer agent therefor (for the
class of shares represented by
-11-
<PAGE> 12
the certificate surrendered) properly endorsed for transfer and accompanied by
such assurances as the Corporation or such transfer agent may require as to the
genuineness and effectiveness of each necessary endorsement.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrong- fully taken of an affidavit of that fact, specifying whether or not,
at the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances, if any, satisfac- tory to the Corporation and to all transfer agents
and registrars of the class of shares represented by the certificate against any
and all losses, damages, costs, expenses or liabilities to which they or any of
them may be subjected by reason of the issue and delivery of such new
certificate or certificates or in respect of the original certificate.
Section 4. REGISTERED STOCKHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE VIII
------------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall commence on such date
in each year as shall be designated from time to time by the board of directors.
In the absence of such designation, the fiscal year of the Corporation shall
commence on January 1 in each year.
-12-
<PAGE> 13
ARTICLE IX
----------
SEAL
----
The board of directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the board of directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE X
---------
AMENDMENTS
----------
These By-Laws shall be subject to alteration, amendment,
repeal, or the adoption of new By-Laws either by the affirmative vote or written
consent of a majority of the whole board of directors, or by the affirmative
vote or written consent of the holders of record of a majority of the
outstanding stock of the Corporation, present in person or represented by proxy
and entitled to vote in respect thereof, given at an annual meeting or at any
special meeting at which a quorum shall be present.
-13-
<PAGE> 1
EXHIBIT 10.3
July 30, 1987
Standard Oil Engineered Materials Company,
A Division of STEMCOR Corporation
345 Third Street
Niagara Falls, New York 14302
Gentlemen:
Reference is made to our lease dated as of July 30, 1987 (the "Lease") of a
manufacturing, warehouse and office facility (the "Facility") in Tonawanda, New
York. All capitalized terms used herein, without definition, shall have the
respective meanings ascribed to them in the Lease.
We hereby agree as follows:
1. In addition to your rent and other payment obligations set forth in the
Lease, you agree to pay such reasonable costs (the "Winter Condition
Costs") as are incurred by the undersigned in connection with
construction of the Facility on account of winter weather conditions, to
the extent the aggregate amount of such costs do not exceed
$40,000. Winter Condition Costs, as used herein, shall include reasonable
costs of labor and materials incurred on account of cold, storm or other
winter weather conditions, and shall include without limitation and by way
of example, costs of snow removal and temporary heating of the Facility,
but shall not include costs of temporary enclosure. You shall be billed
monthly for applicable costs which you shall pay within ten (10) days
following receipt thereof, such bills (at the option of the undersigned)
to be sent to you either from the undersigned or directly from the
undersigned's contractor. To the extent the Winter Condition Costs exceed
$40,000, it is understood that the undersigned will pay such excess.
2. In the event that the undersigned fails to purchase the 8.25 acre site
located at Fire Tower Industrial Park in Tonawanda, New York (the
premises demised under the Lease) by August 10, 1987, due to (i) failure
to obtain a release of a restriction (the "County Restriction") limiting
the use of the subject premises to municipal purposes from the County of
Erie; (ii) matters relating to the marketability of title which we
reasonably believe are unsatisfactory or (iii) the refusal or the
inability of the Town of Tonawanda (the "Seller") to sell, then the Lease
shall be null and void, provided however that in such event you agree to
give us first opportunity to develop an alternative site(s) for your
Facility.
<PAGE> 2
Page 2
3. In the event the undersigned fails to purchase the .12 acre site located
at Fire Tower Industrial Park, in Tonawanda, New York, due to (i) failure
to obtain a release of the County Restriction or (ii) other matters
beyond our control, then you agree to approve such reasonable changes in
the design and location of the Facility as will permit us to lawfully
construct the Facility; and you agree to reimburse the undersigned for
reasonable costs incurred by the undersigned in connection with
implementing any changes in design or location of the Facility as
aforesaid.
4. It is acknowledged that the provisions of this letter shall not be deemed
to be an amendment of the Lease.
Would you kindly confirm your agreement to the foregoing by signing and
returning to the undersigned the enclosed copy of this letter.
Very truly yours,
CC&F TONAWANDA INVESTMENT COMPANY, a New York general partnership
By: CC&F East Limited Partnership, a Delaware limited partnership
By: CC&F Investors, Inc. a Delaware corporation, its general partner
By: [SIG]
-------------------------------------
Title: Senior Vice President
----------------------------------
Agreed to as of this 30th day of July, 1987
STANDARD OIL ENGINEERED MATERIALS COMPANY, a Division of STEMCOR Corporation,
a Delaware corporation
By: [SIG]
----------------------------
Title: President
-------------------------
<PAGE> 3
Sixty State Street
Boston, MA 02109
617-722-8200
[Cabot, Cabot & Forbe Logo]
August 4, 1987
Jim Warczak, Esq.
Standard Oil Engineered Materials
345 Third Street
Niagara Falls, New York 14302
Dear Mr. Warczak:
Enclosed please find one original lease between CC&F Tonawanda
Investment Company and Standard Oil Engineered Materials
Company. Also enclosed is the side letter dated July 30, 1987.
If I can be of any further assistance, please call me.
Sincerely,
/s/ STACY J. FEMIA
Stacy J. Femia
Project Coordinator
SJF:mc
encls.
<PAGE> 4
LEASE
Dated: July 30, 1987
I. REFERENCE DATA; DEFINITIONS
Each reference in this Lease to any of the below titles shall be
construed to incorporate the data stated below for that title.
LESSOR: CC&F Tonawanda Investment Company, a New York General
Partnership
LESSEE: Standard Oil Engineered Materials Company, a division of
STEMCOR Corporation, a Delaware Corporation.
Land Location: STREET: Fire Tower Industrial Park
CITY: Tonawanda
STATE: New York
BUILDING: See outline specifications, Building includes
driveways, parking areas and related improvements.
LOT: The real property described in Exhibit A, including all
rights, privileges, easements and appurtenances belonging
to the Premises.
PREMISES: The aggregate of Building and the Lot
INITIAL TERM: Fifteen (15) Years
RENEWALS: Three (3) additional consecutive terms of five (5)
years each at the option of Lessee
TERM: Initial Term Plus any Renewal Term.
<TABLE>
<CAPTION>
ANNUAL FIXED RENT: Year Amount
---- ------
<S> <C>
1 through 5 $ 468,625.
6 through 15 $ 585,063.
16 through 20 $ 701,500.
21 through 25 Adjustment for CPI Increase
26 through 30 Adjustment for CPI Increase
</TABLE>
<PAGE> 5
2
STRUCTURAL COMPLETION DATE: March 1, 1988
COMPLETION DATE: July 1, 1988
LESSEE'S USES: Ceramic fiber manufacturing facility including offices and
warehouse, or for any other use or purpose provided such
use or purpose is not in conflict with applicable law nor
causes damage to the structural portions of the Building.
LESSOR'S CONSTRUCTION REPRESENTATIVE: Edward Perry
LESSEE'S CONSTRUCTION REPRESENTATIVE: John E. Pilecki
LESSOR'S ADDRESS: CC&F Tonawanda Investment Company
c/o Cabot, Cabot & Forbes
60 State Street
Boston, Massachusetts 02109
Attention: Michael J. Rushman
LESSEE'S ADDRESS: Standard Oil Engineered Materials Company
345 Third Street
Niagara Falls, New York 14302
Attention:
cc: The Standard Oil Company
200 Public Square
Cleveland, Ohio 44114
Attention: Manager of Industrial Properties
<PAGE> 6
3
The following additional sheets are attached to this Lease after the
signature and are incorporated herein by reference, and are to be construed as
a part of this Lease, and each party agrees to perform all obligations stated
therein to be performed by such party.
EXHIBIT A: LEGAL DESCRIPTION
EXHIBIT B: PLANS AND SPECIFICATIONS
II. TABLE OF SECTIONS AND SUBSECTIONS
I. Reference Data
II. Table of Sections and Subsections
III. PREMISES, TERM AND RENT
IV. CONSTRUCTION, REPAIRS AND MAINTENANCE
(a) Construction of Building by Lessor
(b) Failure to Complete Construction
(c) Lessee's Work
(d) Punch List Work
(e) Warranty
(f) Alterations and Additions
(g) Discharge of Liens
(h) Quiet Enjoyment
(i) Subordination
(j) Lessee's Estoppel Certificate
(k) Lessor's Obligation to Repair, Replace and Maintain
V. ADDITIONAL RENT
(a) Payment of Taxes
(b) Payment of Assessments
(c) Right to Contest Taxes & Other Charges
(d) Personal Property Taxes
(e) Insurance Required
(f) Obtaining Insurance
(g) Waiver of Subrogation
VI. LESSEE'S COVENANTS
(a) Payment of Additional Rent
(b) Repairs
(c) Lawns, Roadways and Snow Removal
(d) Alterations and Additions; Signs
(e) Overloading; Compliance with Laws
(f) Assignment and Subletting
(g) Lessor's Liability
(h) Indemnification of Lessor
(i) Use; Licenses
(j) Inspection of Premises
(k) Notice
<PAGE> 7
4
(l) Yield Up
VII. DAMAGE BY FIRE, CASUALTY; EMINENT DOMAIN
VIII. SELF-HELP; INTEREST AND LATE CHARGE
IX. DEFAULT
X. ENVIRONMENTAL INDEMNIFICATION
XI. LESSEE'S OPTION TO TERMINATE
XII. PURCHASE OPTION
XIII. RIGHT OF FIRST OFFER
XIV. TERMS IN EVENT OF SALE
XV. MECHANICS LIENS
XVI. SIGNS
XVII. MISCELLANEOUS
XVIII. MORTGAGEE'S RIGHT TO CURE
XIX. SET-OFF
XX. TERMINOLOGY; CAPTIONS
XXI. BROKER
XXII. ENTIRE AGREEMENT
XXIII. EXAMINATION OF THE LEASE
<PAGE> 8
5
III. PREMISES, TERM AND RENT
Lessor hereby leases unto Lessee, and Lessee leases from Lessor, the
Premises, subject to and with the benefit of the matters hereinafter set forth.
TO HAVE AND TO HOLD for a period of fifteen (15) years beginning on that
date (the "Lease Commencement Date") which shall be the Date of Completion as
hereinafter defined, and continuing for the Term, unless sooner terminated as
hereinafter provided. Lessor and Lessee shall execute a letter setting forth
the Lease Commencement Date and the expiration date of the Initial Term
contemporaneously at the time they are determined.
Lessee shall pay, commencing on the Lease Commencement Date, in advance
one-twelfth of the ANNUAL FIXED RENT for each calendar month of the Term and
the appropriate portion of such amount for any part of a calendar month at the
beginning or end of the Term, payable in advance on the first day of the month.
Except as otherwise specifically set forth herein said rent shall be paid
without notice, demand, offset, defense or deduction to Lessor or to such other
person or entity and at such address as Lessor may direct by written notice to
Lessee, from time to time. All such installments of Annual Fixed Rent and all
Additional Rent and all other sums payable hereunder, and any interest thereon,
shall be payable, without notice or demand, in lawful money of the United
States. To the extent any such installments or other sums payable hereunder by
Lessee to Lessor shall not be paid within ten (10) days of the date the same
shall be due and payable hereunder, Lessee shall be liable for the additional
payments called for in Section VIII.
Lessee shall have an option to extend the term of this Lease for three (3)
consecutive periods of five (5) year each commencing at the expiration of the
current term, provided both at the time of the exercise of this option or at
the beginning of each of the extension periods (i) Lessee is not in default of
any of the covenants, terms and conditions of this Lease, and (ii) this Lease
has not been otherwise terminated. If Lessee chooses to exercise such option,
Lessee shall do so by written notice to Lessor given no sooner than three
hundred sixty (360) days and no later than one hundred eighty (180) days prior
to the expiration of the current Term of this Lease. The terms and conditions
of this Lease during such extension shall be the same as contained herein
except that the Annual Fixed Rent shall be as follows: (a) During the
<PAGE> 9
6
first Renewal Term the Annual Fixed Rent payable by Lessee shall be $701,500
per year. (b) During the second Renewal Term the Annual Fixed Rent payable by
Lessee shall be increased by an amount determined by multiplying the Annual
Fixed Rent during the first Renewal Term (i.e. $701,500) by a fraction, the
denominator of which shall be the Consumer Price Index figure, as hereinafter
defined, published on the date of the commencement of the first Renewal
Term, and the numerator of which shall be the most recent Consumer Price Index
figure published prior to the date of the commencement of the second Renewal
Term; provided, however, that in no event shall the Annual Fixed Rent be
increased by more than twenty five percent (25%). (c) During the third Renewal
Term the Annual Fixed Rent payable by Lessee shall be increased by an amount
determined by multiplying the Annual Fixed Rent during the second Renewal Term
by a fraction, the denominator of which shall be the Consumer Price Index
figure, as hereinafter defined published on the date of commencement of the
second Renewal Term, and the numerator of which shall be the most recent
Consumer Price Index figure published prior to the date of the commencement of
the third Renewal Term; provided, however, that in no event shall the Annual
Fixed Rent be increased by more than twenty five percent (25%). (d) As used
herein the term "Consumer Price Index" shall mean the United States Department
of Labor's Bureau of Labor Statistics Consumer Price Index, all Urban
Consumers, all Items, Buffalo, New York (1967 = 100), or the successor of that
index. In the event Lessor lacks sufficient data to make the proper
determination on the date of any adjustment as provided herein, Lessee shall
continue to pay the monthly Annual Fixed Rent payable immediately prior to the
adjustment date. As soon as the Lessor obtains the necessary data, the Lessor
shall determine the Annual Fixed Rent payable from and after such adjustment
date and notify Lessee of the adjustment in writing. Should the monthly Annual
Fixed Rent for the period following the adjustment exceed the amount previously
paid by the Lessee for that period, the Lessee shall pay the difference to
Lessor.
IV. CONSTRUCTION, REPAIRS AND MAINTENANCE
(a) Construction of Building by Lessor. Lessor agrees to construct in
a good and workmanlike manner, at Lessor's sole cost and expense, the Building
in accordance with the plans and specifications identified in Exhibit B
<PAGE> 10
7
attached hereto and made a part hereof (the "Plans and
Specifications"), original sets of which have been initialed by Lessor and
Lessee on the date hereof. Lessor shall commence construction of the Building
promptly after the date hereof and shall cause the roof and structural portions
of the Building to be completed on or before March 1, 1988 (the "Structural
Completion Date") subject to any extension on account of Force Majeure
conditions as hereinafter provided or delays caused solely by Lessee ("Lessee
Delays"). For the purposes of this Paragraph IV(a) the roof and structural
portions of the Building shall be "completed" when the Lessor has completed the
construction of the roof and structural portions of the Building to the extent
that on such date the Lessee may commence interior foundation work for Lessee's
equipment and install process utilities including water piping and electrical
work as described in the Plans and Specifications.
Lessor shall also cause the Building to be substantially completed on or
before July 1, 1988 (the "Completion Date") subject to any extension on account
of Force Majeure conditions as hereinafter provided or Lessee Delays. For the
purposes of this Paragraph IV(a), the Building shall be "substantially
completed" when Lessor completes the construction of the Building in
accordance with the Plans and Specifications excepting only (a) minor
"punch list" items, the failure to complete which will not materially affect the
use of the Building for their intended purposes and (b) certain floor areas in
the Building which Lessee, in writing, has specified should be left open and
(c) those items contained on the Plans and Specifications which are exterior to
the Building and which could not be completed by Lessor due to weather
conditions so long as the failure to complete the same does not prevent or
hinder the intended use of the Premises by Lessee. Lessor shall notify Lessee
in writing when, in Lessor's judgment, the Building has been substantially
completed, which notice shall include a certification by Lessor's architect or
project engineer that the Building has been substantially completed in
accordance with this Paragraph IV(a). Within three (3) days after Lessee's
receipt of the notice, Lessor, Lessee and their respective representatives
shall conduct an inspection of the Building and, within three (3) days
thereafter, Lessee shall, in a writing to Lessor, (i) specify those items of
work performed by Lessor which are not completed in accordance with the Plans
and Specifications (the "Punch List Work") and (ii) accept or reject Lessor's
<PAGE> 11
8
determination that the Building is substantially completed. If Lessee rejects
Lessor's determination that the Building is substantially completed, the
Building shall be inspected by Trautman Associates, 470 Franklin
Street, Buffalo, New York 14202 ("Trautman") whose determination as to whether
the Building is substantially completed shall be final and binding on the
parties. In the event Trautman determines that the Building is not substantially
completed then Trautman shall specify those items of work which must be
completed prior to substantial completion and the same shall be completed
promptly by Lessor and the Building reinspected in accordance with the terms of
this Paragraph IV(a). The fee of Trautman for the foregoing services shall be
shared equally by the Lessee and the Lessor. For the purposes of this Lease,
the Date of Completion shall be the earlier of (i) the date Lessee accepts the
determination of Lessor that the Building is substantially completed or (ii)
the date Trautman determines that the Building is substantially completed.
Notwithstanding anything herein to the contrary, all construction
including the Lessee's work as hereinafter described must be in compliance with
all applicable laws, ordinances, rules, regulations and requirements of all
governmental or public authorities having jurisdiction thereof, and the
requirements of the insurers of the Building.
During the course of construction, one or more employees or agents of
Lessee designated by Lessee shall at all times have access to Lessor's work to
inspect the progress of Lessor's work, to determine if the work is proceeding
in accordance with the Plans and Specifications and to assist in the
coordination of Lessor's work with the work to be done by Lessee under
Paragraph IV(c) hereof.
(b) Failure to Complete Construction. Lessor agrees that the
Structural Completion and the Completion Date stated herein is a reasonable
time for the completion of the Building. Accordingly, TIME IS OF THE ESSENCE
with respect to the Structural Completion Date and the Completion Date. However,
it is expressly agreed by Lessor and Lessee that the Structural Completion Date
and the Completion Date set forth herein are based upon the granting of a
building permit to Lessor on or before July 28, 1987. In the event the granting
of such building permit shall occur after July 28, 1987,
<PAGE> 12
9
the Structural Completion Date and the Completion Date shall be extended for a
period of time equivalent to the time beyond July 28, 1987 that Lessor obtains
its building permit.
In the event that Lessor fails to cause the roof and structural portions
of the Building to be completed within thirty (30) days following the
Structural Completion Date, or fails to cause the Building to be substantially
completed within thirty (30) days following the Completion Date, except because
of delays caused by fire, earthquake, unusual weather conditions, governmental
moratoriums, unusual delays in the granting of necessary approvals or permits
from appropriate governmental authorities, unavoidable casualty, unusual delays
in transportation of essential materials or equipment, strikes, jurisdictional
disputes between unions representing employees of Lessor's contractors and
subcontractors and those representing employees of Lessee's contractors and
subcontractors (hereinafter collectively called "Force Majeure") or because of
Lessee Delays then the following shall apply:
(i) Lessor shall pay to Lessee the sum of One thousand and 00/100
Dollars ($1,000.00) per day commencing on the thirty-first day
after the Structural Completion Date and continuing until the
Date of Structural Completion, which sum Lessor and Lessee agree
shall be the proper liquidated damages (and not a penalty) that
Lessee will suffer if Lessor fails to cause the roof and
structural portions of the Building to be completed on or before
the Structural Completion Date; the actual damages to be suffered
by Lessee being impossible to ascertain. In no event, however,
shall the liability of Lessor exceed the sum of One hundred
thousand and 00/100 dollars ($100,000) pursuant to this Paragraph
IV(b)(i).
(ii) Lessor shall pay to Lessee the sum of One thousand and 00/100
Dollars ($1,000.00) per day commencing on the thirty-first day
after the Completion Date and continuing until the Date of
Substantial Completion, which sum Lessor and Lessee agree shall be
the proper liquidated damages (and not a penalty) that Lessee
will suffer if Lessor fails to cause the Building to be
substantially completed on or before the Completion Date; the
actual damages to be suffered by Lessee being impossible to
ascertain. In no event, however, shall the liability of Lessor
exceed the sum of One hundred thousand and 00/100 dollars
($100,000) pursuant to this Paragraph IV(b)(ii).
<PAGE> 13
10
(iii) If Lessor's failure to meet the Structural Completion Date or the
Completion Date continues for sixty (60) days after the Structural
Completion Date or the Completion Date set forth herein, Lessee
(in addition to any other remedies it may have at law or in
equity) at any time prior to the date upon which the roof and
structural portions of the Building have been completed by the
Lessor, or the date upon which the Building has been
substantially completed, as the case may be, may, but shall not be
obligated to, complete or cause the completion of the
construction of the Building in accordance with the Plans and
Specifications and receive reimbursement from Lessor in
accordance with Paragraph VIII hereof.
No event herein described as "Force Majeure" for the purposes of this
paragraph shall be considered an event of "Force Majeure" unless Lessor whose
performance is prevented or affected thereby gives prompt written notice to
Lessee of such event, designating it as a "force majeure" event. Such notice
shall include a description of the nature of the event, its causes and the
respects in which the performance of the Lessor is or may be affected. Lessor
shall also use commercially practical efforts to eliminate (or reduce) the
effect of such Force Majeure event. Upon receipt of such notice Lessee shall
promptly notify Lessor of an appropriate time the Completion Date shall be
extended, taking into consideration all factors, but in no event shall such
extension be less than the period of time equivalent to the time lost by reason
of the "Force Majeure" event. The principles of "Force Majeure" as described
herein shall also be applicable to the periods of time referenced in Paragraphs
IV(b)(i) and IV(b)(ii) herein covering liquidated damages payable by Lessor.
In the event of any delay solely attributable to the Lessee and not
attributable to any Force Majeure condition which extends the Lease
Commencement Date beyond the time specified herein, then Lessee agrees to pay
to Lessor on demand a portion of the amount of the Annual Fixed Rent and
Additional Rent which would have been due Lessor had there been no such delay
in the Lease Commencement Date which portion of Annual Fixed Rent and
Additional Rent shall be computed on the basis of each day of delay. However, it
is understood and agreed that Lessor shall provide prompt written notice to
Lessee at the time of the occurrence of any such delay so that Lessee may
minimize or reduce the effect of any delay.
<PAGE> 14
11
(c) Lessee's Work. At the Date of Structural Completion, Lessee, its
agents, employees, contractors and subcontractors shall be permitted on the
Premises and in the Building for the purpose of completing the work of Lessee
as described on the Plans and Specifications and performing such other work as
Lessee deems necessary ("Lessee's Work"). Lessor and Lessee each agrees to
coordinate its work with that of the other party hereto and further each
covenants that neither it, nor its agents, employees, contractors or
subcontractors will interfere with the other party hereto or its
agents, employees, contractors and subcontractors in the performance of the
other party's work. Lessor further agrees that during the course of
construction it shall use reasonable care to avoid damage to the property of
Lessee. During the time that Lessee shall occupy the Premises for the purpose
of completing its work, all terms of this Lease shall apply except that Lessee
shall not be required to pay Annual Fixed Rent and Additional Rent, except if
the Lease Commencement Date is delayed by Lessee Delays.
(d) Punch List Work. Lessor covenants and agrees to complete the
Punch List Work in accordance with the Plans and Specifications within
thirty (30) days after receipt of Lessee's notice specifying same under
Paragraphs 2(a) hereof subject to any extension on account of "Force Majeure"
conditions as herein provided or Lessee Delays. If Lessor fails to complete
such work within said thirty (30) day period then Lessee shall provide Lessor
with an additional ten (10) calendar day written notice of such failure to
complete, and at any time thereafter, Lessee may, but shall not be obligated
to, complete the uncompleted Punch List work and receive reimbursement from
Lessor in accordance with Paragraph VIII hereof.
(e) Warranty. Lessor represents and warrants to Lessee that the
Premises shall be free from defects of materials, design and workmanship for a
period of one (1) year commencing on the Lease Commencement Date. In the event
of any such defects occurring within the one (1) year period, Lessor shall,
upon receipt of written notice specifying such defect from Lessee, and given
within such one (1) year period, promptly remedy by repair or replacement any
defect specified by Lessee. In addition, the Lessor transfers and assigns to
Lessee all its rights under any and all transferable warranties and guarantees
of contractors and subcontractors covering defects of materials, design and
workmanship for periods of time in excess of one (1)
<PAGE> 15
12
year from the Lease Commencement Date so that the Lessee shall have the full
benefit, right and privilege of enforcing those warranties or guarantees if
necessary. Except where Lessor performs a repair which is covered by a warranty
or guarantee, Lessee shall have the right to sue for and recover any damages
and the cost of any restoration and repair caused by the breach of any such
warranty or guarantee, such litigation to be in the name of Lessor or Lessee as
required. Lessor shall provide to Lessee, upon written request from Lessee,
reasonable assistance with respect to the preparation, conduct and prosecution
of any claims made pursuant to such warranties or guarantees. In the event the
assignment by Lessor of any such warranty or guarantee is not permitted, then
Lessor shall use due diligence to enforce all such non-assignable warranties
and guarantees covering defects of materials, design and workmanship for
periods in excess of one (1) year from the Lease Commencement Date. It is
specifically provided, however, that prior to any such enforcement by Lessor,
notice of breach or defect shall have been received by Lessor from Lessee
within a reasonable time necessary to enforce the same. All warranties and
guarantees obtained by Lessor hereunder, whether or not assigned, shall be
listed on attached Exhibit C. Nothing herein contained shall limit Lessor's
obligations set forth in Paragraph IV(k) hereof.
(f) Alterations and Additions. All repairs, alterations,
additions, and restoration by Lessee or Lessor hereinafter required or permitted
shall also be done in a good and workmanlike manner and in compliance with the
following (collectively, "Legal Requirements"): all applicable laws and lawful
ordinances, by-laws, regulations and orders of any governmental authority, the
requirements of insurers of the Building, and of any Mortgage or any title
restriction approved by Lessee. All improvements, alterations and additions to
the Building and fixtures and equipment serving it, made or installed at any
time by either Lessor or Lessee, shall be part of the Building, provided,
however, all signs, machinery, fixtures, equipment, furnishings and other
personal property installed by Lessee in the Premises, and used in Lessee's
business, but not servicing the Building, shall be removable by Lessee. All of
Lessee's installations or alterations shall (i) at all times comply with all
Legal Requirements (ii) be performed in compliance with any plans and
specifications approved in writing by Lessor and be performed in a good and
first class workmanlike manner, and (iii) be
<PAGE> 16
13
coordinated with any work being performed by Lessor so as to enable Lessor to
maintain harmonious labor relations and not cause any work stoppage or damage
to the Premises or interfere with construction of the Building or its
operation. Except for work performed by Lessor's contractor, Lessee, before
commencing any material alteration, installation, repair or improvement which
affects the Premises, shall: (i) secure all licenses and permits necessary
therefor, (ii) cause each contractor or subcontractor to carry workmen's
compensation insurance in statutory amounts covering all of the contractor's
and subcontractor's employees, and comprehensive public liability insurance in
such amount as Lessor may reasonably require, (iii) deliver to Lessor
certificates of all such insurance and (iv) in the case of any material
alteration, Lessee shall give Lessor prior written notice thereof specifying in
reasonable detail the nature of such alteration. Lessee agrees to pay
promptly, when due, the entire cost of any work done, or caused to be done, on
the Premises by Lessee, any individual or entity holding any interest
under Lessee in the Premises or any agents, employees or independent contractors
of any of the foregoing. At the time of completion of all such material
alterations, installations, repairs or improvements Lessee shall provide Lessor
within thirty (30) calendar days after such completion a copy of the "as built"
drawings depicting the completed work. For the purposes of this paragraph
"material" shall mean any alteration, installation, repair or improvement
exceeding the cost of four (4) months of the then current Annual Fixed Rent
provided herein. Lessee may make any non-material alterations, installations,
repairs or improvements to the Premises without the written consent of the
Lessor first had and obtained provided that the value of the Premises shall not
be diminished thereby, no default shall be created under any applicable
Mortgage of Lessor which Lessee has been given prior written notice by Lessor,
and Lessee complies with the other requirements of this paragraph.
(g) Discharge of Liens. Each party doing any construction or other
work agrees to pay for it, and discharge promptly any liens arising from it as
hereinafter provided.
<PAGE> 17
14
(h) Quiet Enjoyment. Lessor agrees that so long as Lessee is not in
default under this Lease, Lessee shall peacefully and quietly have and hold and
enjoy the Premises in accordance with the provisions hereof, during the Term or
until it is terminated, as hereinafter provided, free from disturbance or
interference from Lessor and anyone claiming by, through or under Lessor.
(i) Subordination. This Lease shall be subject and subordinate to any
mortgage now or hereafter on Lessor's interest in all or any part of the
Premises, to each advance made or to be made under any such mortgage and to all
renewals, modifications, consolidations, replacements and extensions thereof
and all substitutions therefor (collectively, the "Mortgage"). This Subsection
(i) shall be self-operative and no further instrument of subordination shall
be required. In confirmation of such subordination, Lessee shall execute and
deliver promptly any certificate that Lessor or the holder of any Mortgage (the
"Mortgagee") may request, provided, however, that the Mortgagee of any such
Mortgage shall covenant in writing reasonably acceptable to Lessee that
Lessee's leasehold interest hereunder shall not be foreclosed nor Lessee's
possession of the Premises disturbed in any action brought under such Mortgage
or in the event of a sale of the Premises as a result of said action if at the
time of bringing an action to foreclose or at the time of the sale Lessee is
not in default in the payment of the Annual Fixed Rent or other charges or in
the performance of any other obligation under this lease, with due allowance to
be given for the payment of any past due Annual Fixed Rent or other charges,
for the correction of any other default by Lessee within the applicable grace
period of time permitted after any notice is given or required to be given
under Paragraph IX of this Lease. In the event that any Mortgagee or its
respective successor in title shall succeed to the interest of Lessor, then
this Lease shall nevertheless continue in full force and effect and Lessee
shall and does hereby agree to attorn to such Mortgagee or successor and to
recognize such Mortgagee or successor as its Lessor. Any such Mortgagee may
subordinate its Mortgage to this Lease, without Lessee's consent, by notice in
writing to Lessee, and thereupon this Lease shall be deemed prior in lien to
such Mortgage without regard to their respective dates of execution and
delivery, and such Mortgagee shall have the same rights with
<PAGE> 18
15
respect to this Lease as though it has been executed and delivered prior to the
execution and delivery of the Mortgage and had been assigned to such Mortgagee.
(j) Lessee's Estoppel Certificate. Lessee agrees, from time to time
as may be requested in writing by Lessor, to execute, acknowledge and deliver
to Lessor an agreement certifying to any Mortgagee or party holding a similar
encumbrance now or hereafter placed on the Premises or to such party as Lessor
may designate, that this Lease is in full force and effect and unmodified and
that Lessee has no defense, off-sets, or counterclaims hereunder, or otherwise
against Lessor with respect to this Lease or the Premises (or if such not be
the case, specifying in reasonable detail the extent and nature thereof) and
the date to which rent has been paid or such other matters as may reasonably be
required by Lessor. Lessee shall provide Lessee with the appropriate estoppel
certificate within thirty (30) calendar days of receipt of any written request
from Lessor.
(k) Lessor's Obligation to Repair, Replace and Maintain. Lessor
represents and warrants to Lessee that it will obtain in its contract covering
the roof of the Building a warranty or guarantee for a period of ten (10) years
from the Lease Commencement Date against any defect of workmanship and
materials. Notwithstanding the warranty or guarantee obtained by Lessor
hereunder and provided the repair and replacement is not necessitated by
fire, other casualty eminent domain or Lessee's negligence or willful
misconduct, Lessor shall at Lessor's expense after receiving written notice from
Lessee during the first year of the Initial Term of this Lease maintain, repair
and replace the roof of the Building. To the extent permitted, Lessor transfers
and assigns to Lessee all its rights under the ten (10) year warranty or
guarantee given by the Lessor's roofing contractor and under any other warranty
or guarantee given by any contractor or subcontractor of Lessor covering the
structural portions of the roof, the footings and bearing walls of the
Building, so that Lessee shall have the full benefit, right and privilege of
enforcing those warranties or guarantees, if necessary. Except where Lessor
performs a repair which is covered by a warranty or guarantee, Lessee shall have
the right to sue for and recover damages and the cost of any restoration and
repair caused by any breach of any such warranty or guarantee, such litigation
to be in the name of Lessor or Lessee as required. Lessor
<PAGE> 19
16
shall provide to Lessee upon request from Lessee, reasonable assistance with
respect to the preparation, conduct and prosecution of any claims made pursuant
to these warranties and guarantees. In the event assignment by Lessor is not
permitted, then Lessor shall use due diligence to enforce all such warranties
and guarantees for periods in excess of one (1) year from the Lease
Commencement Date. It is specifically provided, however, that prior to any such
enforcement by Lessor, notice of breach or defect shall have been received by
Lessor from Lessee within a reasonable time necessary to enforce the same. All
warranties and guarantees obtained by Lessor hereunder, whether or not
assigned, shall be listed on attached Exhibit C.
Notwithstanding the warranties and guarantees obtained by Lessor covering
the structural portions of the roof, the footings and bearing walls of the
building, Lessor shall remain primarily liable at its sole cost and expense to
maintain, repair or replace all such items during the Initial Term of this
Lease including any renewals. Provided, however, that nothing in this Paragraph
(k) shall be construed to require Lessor to make any repairs to the floor
(other than any structural part of the floor). In connection with Lessor's
performance of its obligations (excepting the first year of the ten (10) year
roof obligation stated herein) under this Paragraph (k), Lessor shall be
entitled to first obtain commencement of performance from its general
contractor and to the extent it is unable to obtain commencement of such
performance within ten (10) calendar days after the giving of such notice by
Lessee, the Lessor shall have an additional seven (7) calendar day period to
commence performance of its obligation hereunder. Lessor shall be responsible
for all damage caused to the Premises or to any individuals arising on account
of such work by Lessor; provided, however, subject to the provisions of this
Lease, Lessor shall not, in any event, be liable for inconvenience,
annoyance, disturbance, loss of business or other damages of Lessee or any other
occupancy of the Premises or any part thereof, by reason of the making of such
repairs or effecting the performance of any such work in any reasonable manner
on the Premises, or on account of bringing any materials, supplies and
equipment into and through the Premises in a reasonable manner with respect to
the foregoing, and the obligations of Lessee under this Lease shall not be
affected in any manner whatsoever by reason of the foregoing. All repairs and
replacements which are the responsibility of the Lessor hereunder shall be
<PAGE> 20
17
equal in quality and class to the original work and shall be completed in a
good and workmanlike manner in a reasonable period of time (considering the
nature of the repair) after written notice from Lessee, provided, however, that
the repairs, replacements which are necessary to avoid imminent danger to
persons and property shall be made immediately. In the event the Lessor fails
to complete the repairs for which Lessor is responsible hereunder within the
applicable time period, Lessee may perform such repairs, provided (i) Lessee
has given written notice to any Mortgagee of the Premises whose name has been
given in writing to Lessee, that Lessor has failed to perform the required
repairs, and (ii) said Mortgagee fails to commence the completion of said
repairs on behalf of Lessor within ten (10) days after written notice from
Lessee. If Lessee performs such repairs, Lessor shall, on demand, reimburse
Lessee for the cost thereof, with interest as provided in Paragraph VIII
hereof, accruing from the date Lessee incurs such repair costs. If Lessor fails
to reimburse Lessee for the costs thereof within thirty (30) days after demand
from Lessee, and Lessee obtains a judgment against Lessor for such breach of
this Lease, then Lessee may set-off against the portion of Annual Fixed Rent
due or coming due under this Lease the amount obtained by any such judgment as
hereinafter provided in Paragraph XVII. Notices provided herein following the
initial notice of the need for repair shall not be required in the event of
imminent danger to persons or property.
V. ADDITIONAL RENT
Lessee shall during the Term hereof pay, as Additional Rent, all real
estate taxes, taxes upon or measured by rents, personal property
taxes, assessments (special or otherwise and including, but not limited to,
levies, fees, water and sewer rents and charges and all other governmental
charges and levies of every kind whatsoever, which may at any time be assessed,
levied or imposed upon (A) the Premises, (B) any Annual Fixed Rent, additional
rent or other sum payable hereunder, (C) this Lease, the leasehold estate
hereby created or any interest therein created under Lessee, or (D) the
revenues, rents, issues, income, awards, proceeds and profits of the Premises or
which may arise in respect of the occupancy, use, possession or operation
thereof (all such taxes, levies, fees, rents, charges and other accounts
heretofore referenced in this sentence are collectively called "Taxes" or if
singular
<PAGE> 21
18
"Tax"); and nothing contained in this Lease shall, however, require Lessee to
pay any franchise, corporate or transfer tax of Lessor or of any other person
or entity (other than Lessee), or to pay any income, profits or revenue tax or
charge upon the rent payable by Lessee under this Lease.
(a) Payment of Taxes. Lessee shall pay when due the Taxes assessed
for all tax periods wholly included in the Term, and for any fraction of a tax
period included in the Term at the beginning or end, the corresponding fraction
of the Taxes assessed for the period. All payments shall be made to the taxing
authority, except that payment for the period in which the Term ends shall be
made to Lessor not later than the end of the Term, and if the amount is not
then determinable, shall be made on the basis of the last prior Tax, with
readjustments as soon as the correct amount is determinable. In the event
Lessor receives real estate tax bills which Lessee is obligated to pay
hereunder, Lessor shall promptly deliver such tax bills to Lessee.
(b) Payment of Assessments. In the event of any public, special or
betterment assessments for improvements hereafter installed and not included in
the Plans and Specifications, Lessee may elect, subject to Lessor's approval,
to have the assessments paid over the longest period permitted by law and shall
pay to the taxing authority when due in each case, the entire assessment if the
election is not made or if made, each installment, including interest, coming
due during the Term, and shall pay to Lessor not later than the end of the Term
for any fraction of any installment period at the end of the Term, the
corresponding fraction of the installment, including interest, for the period.
In the event of the payment of the entire assessment and termination of the
Term before the expiration of the longest period permitted by law for
installment payments, Lessor shall reimburse Lessee for the part of the payment
allocable to the part of such period then expired.
(c) Right to Contest Taxes and Other Charges. Lessee shall furnish
Lessor promptly with appropriate evidence of each tax and assessment payment by
Lessee paid to the public authority responsible for collecting such tax or
charge. Lessee, upon prior written notice to Lessor, shall be entitled to
contest, in good faith, in the name of Lessor or Lessee, by appropriate
proceedings diligently conducted, the validity or applicability, as the case
may be, of any:
(i) law of requirement or any proposed law or requirement of
any governmental authority;
<PAGE> 22
19
(ii) tax, assessment or other governmental charge
(iii) requirement of insurance carrier; or;
(iv) other expense or charge, including, but not limited to,
the validity or amount of any mechanic's lien filed
against the Premises by reason of any work, labor,
services or materials supplied or claimed to have been
supplied to Lessee or any person holding the Premises
through or under Lessee provided, however, that any right
to contest a mechanic's lien shall be subject to the
provisions of Paragraph XV.
which during the Term of this Lease shall be levied, assessed, imposed,
demanded or threatened to be levied, assessed, imposed or demanded by any
governmental authority or insurance carrier or with respect to, or alleged by
any person to have been imposed in connection with, the possession, occupation,
alteration, maintenance, repair or use of the Premises or any part thereof or
any improvement therein. Lessor shall be obliged reasonably to cooperate with
Lessee in any such contest which Lessee shall elect to undertake, and to that
end shall promptly send to Lessee copies of all notices pertaining to the
matters specified hereinabove and, promptly make available to Lessee all books
and records of Lessor and all employees and agents of Lessor with personal
knowledge of facts relating to any such contest, without cost to Lessee except
for out-of-pocket expenses. The period of any such permitted contest shall be
excluded in computing the period during which a default shall be deemed to be
in existence if such default would not have occurred but for such contest. It
is specifically provided, however, that Lessee shall not have the right to such
contests in the event a default would be created under any Mortgage now or
hereafter placed on the Premises, or, the failure to promptly cure any such
default will give rise to an imminent danger of the sale of the Premises.
Lessee agrees that it will indemnify and save harmless Lessor from any and all
loss, cost, damage, expense, penalty or any liability whatsoever resulting from
or in any manner arising out of the delay or failure to pay when due, discharge
or comply with any such law, tax, assessment or other governmental charge,
requirement of any insurance carrier or other expenses or charges as aforesaid
which Lessee shall so contest. Any such contest which Lessee shall elect to
undertake shall be at Lessee's expense, and any refund from any contested item
based upon payment by Lessee
<PAGE> 23
20
shall belong absolutely to Lessee. Lessee shall provide any security reasonably
required by Lessor or its Mortgagee with respect to any such contests.
(d) Personal Property Taxes. Prior to delinquency, Lessee shall pay
all taxes and assessments levied upon trade fixtures, inventories and other
personal property located on the Premises to whomever assessed.
(e) Insurance Required. The following insurance (from insurance
companies reasonably satisfactory to Lessor and each Mortgagee) shall be
carried by Lessee protecting Lessor, as a named insured and each Mortgagee
(with a standard mortgagee endorsement or otherwise naming Mortgagee in such
manner as it shall reasonably require), and first payable in case of loss to
such Mortgagees as Lessor may from time to time require:
(1) All risk insurance on the Building providing for payment
of repair or replacement costs including debris removal with a deductible not
in excess of $50,000. Such insurance coverage shall cover the hazards
customarily included under all risk insurance forms in common use within the
state of New York and shall be no less broad than the Insurance Service Office
all risk building form (in effect on the Commencement Date). Such insurance
coverage shall also include coverage for debris removal expenses and the peril
of earthquake, and the peril of flood if such protection is required by any
Mortgagee. The amount of insurance shall be at least equal to 100% of the
replacement cost of the Building, including the cost of debris removal. Lessee
may unilaterally increase the amounts of such coverage at any time. If at any
time during the Term hereof, Lessor or any Mortgagee determines the amount to
be inadequate, Lessor shall so advise Lessee in which event the coverage shall
be increased to such greater amount. In the event the parties disagree as to
such increased amount such shall be determined by appraisal made at the expense
of Lessee by an accredited insurance appraiser approved by Lessor.
(2) Insurance against abatement or loss of rent in case of
fire or other casualty similarly insured against, in an amount at least equal
to the Annual Fixed Rent and Additional Rent payments to be made by Lessee
during one (1) year next ensuing as reasonably determined by Lessor.
<PAGE> 24
21
(3) Comprehensive public liability insurance, in the form
customary to the locality in which the Premises are located, insuring Lessee's
activities and those of Lessee's employees, agents, licensees and invitees with
respect to the Premises against loss, damage or liability for personal injury
or death of any person or loss or damage to property occurring on the Premises
in amounts of not less than: One Million and No/100 Dollars ($1,000,000) for
primary coverage and; Five Million and No/100 Dollars ($5,000,000) in excess
liability coverage.
(4) During any period of construction, substantial repair or
alteration or any restoration or reconstruction undertaken by Lessee, All-risk
Builder's Risk Insurance (or another form of coverage which shall be no less
favorable to the interests or Lessor) in completed non-reporting form, in such
amounts as Lessor shall reasonably require;
(5) Workmen's Compensation Insurance in full compliance with
the requirements of New York and covering all construction, repairs,
alterations, restorations, and other work covered by or on behalf of Lessee on
or about the Premises; and
(6) Such other insurance as shall be reasonably required by
any Mortgagee.
If Lessee has in full force and effect a blanket policy of liability
insurance with the same coverage for the Premises as described above, as well
as coverage of other Premises and properties of Lessee, or in which Lessee has
some interest, such blanket insurance shall satisfy the requirements hereof.
(f) Obtaining Insurance. Lessee shall obtain all required insurance
from insurance companies reasonably satisfactory to each Mortgagee, and Lessee
shall pay the cost. Lessee shall furnish to Lessor on or before the Lease
Commencement Date, and thereafter within thirty (30) days prior to the
expiration of each such policy, certificates of insurance issued by the
insurance carrier of each policy of insurance carried by Lessee pursuant
hereto. Each certificate shall expressly provide that such policies shall not
be cancellable or subject to reduction of coverage or otherwise be subject to
modification except after thirty (30) days' prior written notice to the parties
named as insureds in this Subsection (f).
<PAGE> 25
22
Lessor, Lessor's successors and assigns, and any nominee of Lessor
holding any interest in the Premises, including, without limitation, any ground
lessor and the holder of any fee or leasehold mortgage, shall be named as named
insureds under each policy of insurance maintained by Lessee as directed by the
Lessor in writing.
(g) Waiver of Subrogation. Any insurance carried by either party with
respect to the Premises or property therein or occurrences thereon shall
include a clause or endorsement denying to the insurer rights of subrogation
against the other party to the extent rights have been waived by the insured
prior to occurrence of injury or loss. Each party, notwithstanding any
provisions of this Lease to the contrary, hereby waives any rights of recovery
against the other for injury or loss due to hazards covered by such insurance
to the extent of the indemnification received thereunder.
VI. LESSEE'S COVENANTS
Lessee agrees during the Term and so long as Lessee's occupancy
continues:
(a) Payment of Additional Rent. It is expressly agreed that this is an
absolutely net lease, it being the intention of the parties hereto that, except
as expressly set forth herein, Lessee shall pay and discharge, to the
appropriate person or entity to whom the same shall be payable, from and after
the Lease Commencement Date hereof, and except as otherwise expressly provided
in this Lease, without counterclaim, abatement, deduction, defense or offset,
as additional rent hereunder (the "Additional Rent"), punctually as and when
the same shall become due and payable, all sums required to be paid by Lessee
hereunder, including, without limitation, each and every fine, penalty, Tax,
charge, assessment and expense of every kind and nature whatsoever, the payment
for which Lessor is, or shall become liable by reason of any rights or interest
of Lessor or Lessee in, to or under the Premises, this Lease or any Legal
Requirement relating thereto, or otherwise relating to or arising out of the
use, occupancy, maintenance, operation, repair, rebuilding or alteration of all
or any part of the Premises or any Legal Requirement relating thereto.
Nothing herein contained shall require or be construed to obligate
Lessee to pay any franchise, corporation, capital stock, capital levies,
transfer, estate or inheritance, income or excess profits tax imposed upon
<PAGE> 26
23
Lessor or upon Lessor's successors or assigns or any of them; provided how-
ever, that in any case in which a tax may be levied, assessed or imposed upon
the income arising from the Rent hereunder or from the use and occupancy of the
Premises in lieu of a real estate tax upon the Premises, or if at any time
during the Term of this Lease the method of taxation prevailing at the
commencement of the Initial Term hereof shall be altered so as to cause the
whole or any part of the taxes, assessments, levies, impositions or charges now
or hereafter levied, assessed or imposed wholly or partially as a capital levy
or otherwise on the rents therefrom in lieu of or in addition to a real estate
tax upon the Premises, Lessee shall upon written request by Lessor reimburse
the same to Lessor.
(b) Repairs. Except as provided in Sections IV and VII below, at its
expense, to keep the Premises, Building and any improvements thereto in good
repair, operating condition and working order, and to commence promptly and
proceed diligently with any repair or restoration required. All repairs and
replacements which are the responsibility of Lessee hereunder shall be equal in
quality and class to the original work and shall be completed in a good and
workmanlike manner in a reasonable period of time (considering the nature of the
repair), provided, however, that repairs which are necessary to avoid imminent
danger to persons and property shall be made immediately.
(c) Lawns, Roadways and Snow Removal. To take good care of all
lawns and planted areas on the Premises, and keep in good repair all surfaced
roadways, walks, and parking and loading areas thereon, and any sidewalks in
front thereof, and keep the roadways, walks, parking and loading areas and
sidewalks in use clean and free of snow and ice, and the exterior of the
Premises clean and neat.
(d) Alterations and Additions. Except as otherwise expressly
provided in this Lease not to make any alterations or additions to the exterior
of the Building, nor make any interior alterations or additions that either
reduce the fair market value of the Building or impairing its structural
strength or any of its building systems.
(e) Overloading; Compliance with Law. Not to overload or deface the
Premises or Building, and not to permit any use contrary to any law, or lawful
ordinance, by-law, regulation or order of public authority and any other Legal
<PAGE> 27
24
Requirement, whether with respect to safety appliances or to alterations,
repairs, or additions required as a condition for continuance of use, or
otherwise.
(f) Assignment and Subletting. Lessee may sublet all or any part of
the Premises with the consent of the Lessor, which consent shall not be
unreasonably withheld. Such consent shall be deemed to be unreasonably withheld
if the proposed subtenant is of such financial standing and responsibility at
the time of such subleasing as to give reasonable assurance of the payment of
the Annual Fixed Rent and other amounts reserved in this Lease, and compliance
with all of the terms, covenants, provisions and conditions of this Lease. In
connection with any request by Lessee for such consent, Lessee shall submit to
Lessor, or any Mortgagee which Lessee has been notified by Lessor, in writing
("Subtenant Notice") the name of the proposed subtenant, such information as to
the financial responsibility of the subtenant as Lessor may reasonably
require, and all of the terms and provisions upon which the proposed subletting
is to be made. Upon receipt from Lessee of such request and information Lessor
shall indicate to Lessee in writing its consent to or rejection of such
subletting within thirty (30) calendar days. In the event Lessor fails to
provide its consent to or rejection of such subletting within the thirty (30)
day period, then such failure shall be deemed as a consent of Lessor to such
subletting. Lessee shall also promptly after the execution of any sublease
deliver a copy of the same to the Lessor. Any sublease permitted hereunder
shall not afford the subtenant with any rights inconsistent with the terms of
this Lease and the Subtenant Notice. In the event of any subleasing Lessee
shall remain liable to Lessor for the performance of all of the conditions and
covenants on its part to be performed under this lease.
Lessee may assign this Lease or any interest therein, provided that:
(i) The signed written consent of the Lessor to any such
assignment and assumption agreement and the assignee
shall first be obtained (which consent Lessor will not
unreasonably withhold); and
(ii) in the event of any such permitted assignment Lessee
shall remain primarily liable as Lessee for the
performance of all of the conditions and covenants on
<PAGE> 28
25
the part of Lessee to be performed under this Lease,
unless Lessor shall otherwise expressly consent in
writing.
The right on the part of Lessee to assign this Lease under the
foregoing provisions of this Paragraph VI(g) shall be upon the express
condition that such assignment shall be in writing, executed by Lessee and the
assignee, that in such writing the assignee shall, in consideration of such
assignment, agree to assume, perform and be bound by all of the terms,
obligations and conditions on the part of Lessee to be performed under this
Lease, and that a duplicate executed counterpart of such instrument of
assignment and assumption shall be delivered to Lessor within ten (10) days
after the execution thereof. It is however specifically agreed that the
Purchase Option hereinafter contained shall not be transferable by any
assignment by Lessee except to any transferee of all or any portion of the
Ceramic Fibers business of Lessee, or the parent corporation of Lessee, or any
subsidiary corporation, the majority of whose common stock is controlled by the
parent of Lessee, or the parent thereof. No consent shall be required, nor
shall any other provision of this Paragraph be applicable in the event that
such assignment or sublease is to a parent corporation of Lessee or any such
subsidiary corporation thereof, or any parent corporation thereof, provided,
however, Lessee shall not be released from this Lease in such event.
(g) Lessor's Liability. That Lessor shall not be responsible for
any loss or damage to person or property on the Premises unless caused by
wrongful act or negligence of Lessor, its employees or agents.
(h) Indemnification of Lessor. To save Lessor harmless and
indemnified from any liability for injury, loss, accident or damage to any
person or property, and from any claims, actions, proceedings, and cost in
connection therewith, including reasonable counsel fees, arising from omission,
fault, negligence or other misconduct of Lessee, or arising from any use made
or thing done on or about the Premises, or otherwise occurring thereon, and not
due to omission, fault, negligence or other misconduct of Lessor; and to keep
all Lessee's employees working in the Premises covered by workmen's
compensation insurance furnishing Lessor with certificates thereof.
(i) Use; Licenses. To use the Premises only for the Lessee's Uses
stated in Section I above, and to procure any licenses and permits from time to
time required therefor; not to permit open storage on the Premises detri-
<PAGE> 29
26
mental to the appearance of the Premises and to require loading and unloading,
and parking of cars for employees, customers and visitors, in connection with
Lessee's business, to be done so far as practicable on the Premises and not on
adjacent streets.
(j) Inspection of Premises. Subject to the Lessee's reasonable
security requirements which include the requirement of signing of Lessee's
standard secrecy agreement, to permit Lessor to examine the Premises at
reasonable times, and during the year prior to expiration of the Term to show
the Premises to prospective purchasers and lessees, and keep affixed in
suitable places, without obstructing Lessee's signs or displays, notices for
letting and selling.
(k) Notices. Whenever Lessor or Lessee shall make any demand or
serve any notice which is required to be in writing under the terms of this
Lease upon the other, the same shall be sufficiently given if sent, postage
prepaid, by United States registered or certified mail, addressed to Lessee at
Standard Oil Engineered Materials Company, 345 Third Street, Niagara Falls, New
York 14302, cc: the Standard Oil Company, 200 Public Square, Cleveland, Ohio
44114, Attention: Manager of Industrial Properties and to Lessor at CC&F
Tonawanda Investment Company c/o Cabot, Cabot & Forbes, 60 State Street,
Boston, Massachusetts 02109, Attention: General Counsel, or at such other
address as Lessor or Lessee may theretofore by written notice to the other have
designated for the service of such notice.
(l) Yield Up. At the expiration or earlier termination of the Term,
promptly to yield up, subject to reasonable wear and tear, clean and neat, the
Premises and all improvements, alterations and additions thereto, and all
fixtures and equipment servicing the Building, to remove all Hazardous Waste,
in compliance with all Legal Requirements, and to remove Lessee's signs, goods
and effects and any machinery, fixtures and equipment used in the conduct of
Lessee's business not servicing the Building, and to repair any damage caused
by the removal. If Lessee shall fail so to effect the removal of its effects
and property from the Premises, Lessor may, at its option, remove and/or store
such effects and property, without incurring any liability to Lessee for loss
thereof, and Lessee agrees to pay Lessor, as Additional Rent, upon demand
(which obligations shall survive the expiration or termination of the Term)
<PAGE> 30
27
any and all reasonable and customary expenses incurred in respect of such
removal and storage, including court costs and attorneys' fees. The provisions
of this Subsection (1) shall survive any termination of this Lease.
VII. DAMAGE BY FIRE, CASUALTY; EMINENT DOMAIN
(a) In case of damage to the Building or Premises by fire or
casualty or action of public authority in consequence thereof, Lessee shall
promptly notify Lessor, and Lessee shall repair the damage at Lessee's sole
cost and expense. The work shall be commenced promptly and completed with due
diligence, except for any Force Majeure Event, and all sums recovered or
recoverable under any required insurance against the damage shall thereupon be
assigned to Lessor and paid over to Lessee on a monthly basis, as costs are
incurred, up to the cost of restoration. Lessor agrees not to accept any
settlement of insurance against damage being repaired by Lessee without first
giving Lessee at least fifteen (15) days' notice of the amount of the proposed
settlement, and if Lessee so requests within the notice period, reasonable
opportunity to seek at Lessee's risk and expense a better settlement.
(b) In case the Building is rendered untenantable by fire or other
casualty or action of public authority in consequence thereof, a just
proportion of the Annual Fixed Rent and Taxes, according to the nature of the
injury, shall be abated until the repair is completed, but if the abatement
would at any time exceed the proceeds of insurance against abatement or loss of
rent in case of fire or other casualty similarly insured against, Lessor may
terminate this Lease by giving Lessee at least fifteen (15) days' notice
specifying the termination date, unless Lessee before the termination date
waives abatement so far as not covered by such proceeds.
(c) If any such fire or other casualty shall occur within two (2)
years of the expiration of the Initial Term or any Renewal Term hereunder, and
if the estimated cost of repair is more than four (4) months of the then
current Annual Fixed Rent, Lessee, may, at its sole option, in lieu of
rebuilding the same, terminate this Lease and all of its obligations hereunder,
in which event Lessor shall retain the insurance proceeds received by Lessor
attributable to the loss of the Premises. In the event (i) the
<PAGE> 31
28
insurance proceeds shall be inadequate to cover such loss, or (ii) of any
uninsured loss, Lessee shall promptly provide payment to Lessor to cover any
deficiency in the insurance proceeds or uninsured loss.
(d) If the whole of the Premises, or such part thereof as shall in
Lessee's judgment reasonably exercised, substantially interfere with Lessee's
use and occupancy thereof, be taken for any public or quasi-public purpose by
any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain or sold to prevent such taking, Lessee may, at
Lessee's option, terminate this Lease effective as of the date possession is
taken by said authority by written notice to Lessor given within thirty (30)
days after the date possession is taken by said authority. If Lessee does not
elect to terminate, this Lease shall continue in full force and effect except
that the Annual Fixed Rent shall be equitably reduced (to the extent provided
in the immediately succeeding sentence) and Lessee, at Lessee's expense, shall
promptly proceed to restore the Premises to a condition as nearly equivalent as
feasible to its condition prior to said taking subject only to Force Majeure.
The equitable adjustment in the Annual Fixed Rent shall be computed to equal
the dollar-for-dollar decrease in the then current debt service payments
covering the Mortgage which grants a first lien on the Premises, after
application of all condemnation proceeds given to Lessor (in excess of any
amounts necessary to repair the Premises) to the payment of the indebtedness
secured by the Mortgage. Lessor shall apply all condemnation proceeds (in
excess of any amounts necessary to repair the Premises) obtained by it towards
payment of the indebtedness secured by the Mortgage. In the event of such
restoration by Lessee, all condemnation proceeds received by Lessor shall be
held by Lessor and paid over to Lessee on a monthly basis, as costs are
incurred by Lessee, up to the cost of restoration.
(e) If the amount of property or the type of estate taken shall
not, in Lessee's judgment reasonably exercised, substantially interfere with
Lessee's use and occupancy of the Premises, this Lease shall not terminate and
Lessee, at Lessee's expense, shall promptly proceed to restore the Premises to
substantially their same condition prior to such partial taking subject only to
Force Majeure, and the Annual Fixed Rent shall be equitably reduced (to the
extent provided in the immediately succeeding sentence). The equitable
adjustment in the Annual Fixed Rent shall be computed to equal the dollar-
<PAGE> 32
29
for-dollar decrease in the then current debt service payments covering the
Mortgage which grants a first lien on the Premises, after application of all
condemnation proceeds given to Lessor (in excess of any amounts necessary to
repair the Premises) to the payment of the indebtedness secured by the
Mortgage. Lessor shall apply all condemnation proceeds (in excess of any
amounts necessary to repair the Premises) obtained by it towards payment of the
indebtedness secured by the Mortgage. In the event of such restoration by
Lessee, all condemnation proceeds received by Lessor shall be held by Lessor
and paid over to Lessee on a monthly basis, as costs are incurred by Lessee, up
to the cost of restoration.
(f) Lessor shall be entitled to receive the entire amount of any
award as the owner of all interests in the real estate without deduction for
any estate or interest of Lessee, except for any proceeds allocable to property
installed by Lessee which Lessee has the right to remove from the Premises upon
the termination of this Lease. Notwithstanding anything hereinabove to the
contrary, Lessee shall have the right to pursue, at Lessee's expense, by
separate claim against the taking authority, any right Lessee might have for
compensation for Lessee's cost of moving or relocating any trade fixtures,
equipment, machinery or other personal property that Lessee placed upon the
Premises, or for the recovery of any other provable damages to Lessee's
business, so long as the award to the Lessor is not thereby diminished.
VIII. SELF-HELP; INTEREST AND LATE CHARGE
(a) If Lessee fails to perform any covenants or observe any
condition to be performed or observed by Lessee hereunder or acts in violation
of any covenant or condition hereof, Lessor may, but shall not be required, on
behalf of Lessee, to perform such covenant and/or take such steps as may be
necessary or appropriate to meet the requirements of any such covenant or
condition, provided that Lessor shall have given Lessee at least ten (10) days'
prior notice of Lessor's intention to do so unless an emergency situation
exists in which case, Lessor shall have the right to proceed immediately; and
all costs and expenses incurred by Lessor in so doing, including reasonable
legal fees, shall be paid by Lessee to Lessor upon demand, plus interest at the
rate of two percentage points above Prime Rate, hereafter defined, as
Additional Rent. For purposes of this Lease, the term Prime Rate shall mean the
annual interest
<PAGE> 33
30
rate charged by the Bank of New England on ninety (90) day commercial loans to
its most creditworthy borrowers on the date the cost or expense is incurred.
To the extent Lessor shall exercise any of the rights reserved to Lessor under
this Section VIII, such exercise shall not in any way prejudice any rights
Lessor might otherwise have against Lessee by reason of Lessee's default, and
whether or not Lessee shall be in default hereunder shall be determined as if
Lessor had not so proceeded (except insofar as notice of Lessee's failure to
perform any covenants or observe any condition given under this Section VIII
shall also be deemed to be notice thereof to Lessee under the provisions of
Section IX hereof).
If any installment of Annual Fixed Rent or Additional Rent is not paid
promptly when due, such amount shall bear interest at the maximum rate
permitted by law from the date on which said payment shall be due until the
date on which Lessor shall receive said payment regardless of whether or not a
notice of default or notice of termination has been given by Lessor. In
addition, Lessee shall pay Lessor a late charge of three percent (3%) of the
amount delinquent. Lessor and Lessee recognize that the damage which Lessor
shall suffer as a result of Lessee's failure to pay rent promptly is difficult
to ascertain, said late charge being the best estimate of the damage which
Lessor shall suffer in the event of Lessee's late payment. This provision shall
not relieve Lessee of Lessee's obligation to pay Annual Fixed Rent and
Additional Rent at the times and in the manner herein specified.
(b) Lessee's Right to Perform Lessor's Covenants. In addition to,
but without limitation or qualification of, any other right or remedy of Lessee
herein provided, if Lessee, in accordance with applicable provisions of this
Lease covering any of the obligations of the Lessor, performs any of Lessor's
obligations thereunder then the amount of any payments made or other costs or
expenses incurred by Lessee for such purposes, including, but not limited to,
reasonable attorneys' fees paid to other than "in house" counsel of Lessee,
shall be paid by Lessor to Lessee upon demand together with interest thereon at
the rate of two percentage points above Prime Rate, accruing from the date
Lessee makes such payment or incurs such cost or expense. In the event Lessor
fails to reimburse Lessee for such costs or expenses within thirty (30)
calendar days after written demand from Lessee, and Lessee obtains a judgment
<PAGE> 34
31
against Lessor for such breach of the Lease, then Lessee may set-off against
the portion of Annual Fixed Rent due or coming due under this Lease the amount
obtained by any such judgment as hereinafter provided in Paragraph XVII.
IX. DEFAULT
If any default by Lessee continues after notice, in case of Annual
Fixed Rent for more than ten (10) calendar days, or in any other case for more
than thirty (30) calendar days and such additional time, if any, as is
reasonably necessary to cure the default; or if Lessee makes any assignment for
the benefit of creditors, commits any act of bankruptcy or files a petition
under any bankruptcy or insolvency law; or if such a petition filed against
Lessee is not dismissed within ninety (90) calendar days; or if a receiver or
similar officer becomes entitled to this leasehold and it is not returned to
Lessee within ninety (90) calendar days; or if Lessee's interest in this Lease
is taken on execution or other process of law in any action against Lessee,
Lessor may immediately or at any time thereafter and without demand or further
notice make entry and repossess, and without any liability for so doing, the
Premises, without prejudice to any other remedies, and thereupon this Lease
shall terminate; and in case of such termination, or termination by legal
proceedings for default, Lessee shall indemnify Lessor during the remaining
period before this Lease could otherwise expire against all loss or damage
suffered by reason of this termination, the loss or damage, if any, for each
Lease month to be paid at the end thereof. Nothing herein contained shall,
however, limit or prejudice the right of Lessor to prove for and obtain in
proceedings for bankruptcy or insolvency by reason of the termination, an
amount equal to the maximum allowed by many statute or rule of law in effect at
the time when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater, equal to, or less than the amount
of the loss or damage referred to above.
In lieu of any other damages or indemnity and in lieu of full recovery
by Lessor of all sums payable under all the foregoing provisions of this
Section IX, Lessor may by written notice to Lessee, at any time after this
Lease is terminated under any of the provisions contained in this Section IX or
is otherwise terminated for breach of any obligation of Lessee and before such
full recovery elect to recover, and Lessee shall thereupon pay, as
<PAGE> 35
32
liquidated damages, an amount equal to the aggregate of the Annual Fixed Rent
and Additional Rent accrued hereunder in the six (6) months ended next prior to
such termination plus the amount of Annual Fixed Rent and Additional Rent of
any kind accrued and unpaid at the time of termination and less the amount of
any recovery by Lessor under the foregoing provisions of this Section IX, up to
the time of payment for such liquidated damages.
In the event of any repossession by Lessor without terminating this
Lease, Lessor shall use Lessor's reasonable efforts to relet and keep rented
the Premises or any part thereof, as agent of Lessee, to any person, firm or
corporation, and on such terms as Lessor, in its reasonable judgment, may
determine, provided that Lessor shall use reasonable efforts to mitigate
damages to Lessee arising from Lessee's continuing liability under this Lease.
Lessor may make reasonable repairs, alterations, and/or replacements in or on
the Premises to the extent reasonably necessary and advisable for the purposes
of reletting the Premises, and the making of such repairs, alterations,
additions and/or replacements, shall not operate or be construed to release
Lessee from liability hereunder; and Lessee shall upon demand pay the cost
thereof, together with Lessor's expense of reletting (including reasonable
legal expenses and brokerage commissions). If the rents collected by Lessor
upon any such reletting are not sufficient to pay monthly the full amount of
the Annual Fixed Rent and Additional Rent and other charges reserved herein,
together with such costs and expenses, Lessee shall pay to Lessor the amount of
each monthly deficiency upon demand, and until Lessor elects to terminate this
Lease (which termination may be effected by Lessor at any time following
repossession by Lessor) and if the rent so collected from any such reletting is
more than sufficient to pay the full amount of the Annual Fixed Rent and
Additional Rent, together with the costs and expenses of Lessor, Lessor shall,
at least every twelve (12) months after such eviction, pay one-half of any
surplus to Lessee.
Any and all property which may be removed from the Premises by Lessor
shall be handled, removed, stored or otherwise disposed of by Lessor at the
risk and expense of Lessee except that Lessor shall handle said property with
all reasonable care. Lessee shall pay to Lessor, upon demand, any and all
expenses incurred in such removal and all storage charges against such
property, so long as the same shall be in Lessor's possession or under
<PAGE> 36
33
Lessor's control. If any property shall remain in the Premises or in the
possession of Lessor and shall not be retaken by Lessee within a period of
thirty (30) calendar days from and after the time when the Premises are either
abandoned by Lessee after termination of this Lease, said property shall
conclusively be deemed to have been abandoned by Lessee. Lessee shall have the
right to claim and remove such property within said thirty (30) calendar day
period.
If any statute or rule of law shall validly limit the amount of such
liquidated damages to less than the amount above agreed upon, Lessor, if it
exercises the option to recover liquidated damages described above in this
Section IX, shall be entitled to the maximum amount allowable under such
statute or rule of law.
No remedy herein conferred upon or reserved to Lessor is intended to be
exclusive of any other remedy herein or by law or equity provided, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
X. ENVIRONMENTAL INDEMNIFICATION
Lessee shall indemnify, defend and hold Lessor harmless from and
against any and all liabilities, claims, demands, suits, proceedings, damages,
penalties and fines of whatsoever kind and nature, and all costs and expenses
incident thereto, which Lessor may incur, suffer, pay out or otherwise become
liable for, resulting from Lessee's ownership, removal, possession, storage,
transportation, disposal or use of any hazardous waste, toxic substances or
toxic or hazardous materials (collectively "Hazardous Materials") placed or
generated by Lessee at, on or about the Premises. For the purposes of this
paragraph Hazardous Materials shall include, but not be limited to, substances
defined as "hazardous substances" or "toxic substances" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9061, et. seq. ("CERCLA"); Hazardous Materials Conservation and
Recovery Act 42 U.S.C. Section 6901, et. seq. ("RCRA"); Hazardous Materials
Transportation Act, 49 U.S.C. Section 1802; and those substances defined as
"hazardous wastes" in the laws of the State of New York, and in any regulations
adopted and publications promulgated pursuant to said laws. Lessee further
agrees to promptly provide Lessor copies of all notices of
<PAGE> 37
34
violation from the Environmental Protection Agency, New York Department of
Environmental Conservation and other comparable governmental authorities
dealing with the protection of the external environment.
XI. LESSEE'S OPTION TO TERMINATE
Lessee shall have the option to terminate this Lease at the end of the
tenth year of the Term hereof by providing six (6) months' written notice to
Lessor prior to the end of the tenth year, and Lessee shall pay to Lessor on or
before such termination date a sum equal to two (2) years of the Rent
($1,170,126). Upon payment to Lessor both parties shall be released from any
further liability or obligation under this lease.
XII. PURCHASE OPTION
For and in consideration of the Rent as specified herein, and in
further consideration of the mutual covenants, agreements and stipulations
hereinafter set forth, Lessee is hereby granted an exclusive and irrevocable
option to purchase the Premises at the following times and prices:
<TABLE>
<CAPTION>
Period of Time Purchase Price
-------------- --------------
<S> <C>
End of Tenth Year of Lease $5,570,000.
End of Fifteenth Year of Lease $6,460,000.
End of Twentieth Year of Lease $7,425,000.
</TABLE>
Said purchase option shall be exercisable by Lessee giving to Lessor at
least thirty (30) days written notice of its election to exercise the option at
any time during the Term hereof. The purchase price herein specified shall be
reduced by any condemnation proceeding awards received by Lessor, its
successors and assigns since the commencement of this Lease (exclusive of any
portion of the award applied for restoration of the Premises).
The parties understand and agree that no broker participated in the
negotiations for the purchase option and that no brokerage commission or fee
shall be payable in case of a sale pursuant to this option.
The parties further understand and agree that the options granted to
Lessee hereunder are subject to the New York State Transfer Gains Tax Law and
Lessor and Lessee agree to promptly file any and all statements concerning the
options contained herein to the New York State Department of Taxation and
Finance in Albany, New York. Lessor and Lessee agree to cooperate with each
<PAGE> 38
35
other in good faith to provide any and all information required by the
Department of Taxation and Finance. In the event the Department of Taxation and
Finance determines that there shall be any tax due on the basis of the granting
of the options herein contained, then Lessee shall pay such tax directly to the
Department of Taxation and Finance. However, any tax arising out of the New
York State Transfer Gains Tax Law by reason of the exercise of the option to
purchase by Lessee as set forth herein shall be the sole responsibility and
paid by the Lessor.
XIII. RIGHT OF FIRST OFFER
During the Term of this Lease, Lessee shall have a right of first offer
with respect to a purchase of the Premises (or to lease the same for a period
after the expiration of this Lease). Lessor shall give Lessee written notice
("Offering Notice") of Lessor's intention to sell (or lease) the Premises. The
Offering Notice shall include the terms and conditions of the sale (or lease).
Lessee shall have thirty (30) calendar days after it receives the Offering
Notice to notify Lessor in writing of whether or not Lessee will buy (or lease)
the Premises. In the event the Lessee elects not to purchase (or lease) the
Premises, or fails to give Lessor written notice within thirty calendar days
after receiving the Offering Notice, Lessee's right of first offer with respect
to the Premises covered by the Offering Notice shall terminate and Lessor shall
have the right to sell (or lease) the Premises to any third party; provided,
however, that in the event Lessor does not sell (or lease) the Premises on
terms no more favorable to the Lessee than those stated in the Offering Notice
within one hundred eighty (180) calendar days after the termination of Lessee's
right of first offer, then Lessee's right of first offer shall be reinstated
and the terms of this section shall again be applicable to the Premises. The
term "Premises" as used in the foregoing paragraph includes all or any portion
of the Premises and the land of which the Premises is a part. Said first offer
shall run with the land and failure of Lessee to exercise said option in any
one case shall not affect Lessee's right to exercise said option in any case
thereafter arising.
<PAGE> 39
36
XIV. TERMS IN EVENT OF SALE
Upon receipt of notice of Lessee's election to purchase the Premises
pursuant to the options herein granted, Lessee shall procure from a responsible
title company a Preliminary Report on Title on the condition of the title of
Lessor. Lessee shall have a reasonable time to examine the Preliminary Report
on Title. Upon completion of such examination, Lessee shall notify Lessor of
any defects, restrictions, liens, encumbrances or encroachments affecting the
Premises which are not caused or placed on the Premises by Lessee and not
reflected on attached Exhibit D ("Title Exceptions"), in which event, Lessor
agrees to promptly correct or cure the same if so requested by Lessee, to the
extent such Title Exceptions were caused by Lessor, or if not caused by Lessor,
Lessor shall use its best efforts to cause the company issuing Lessor's title
insurance to correct or insure against the same, or in the alternative Lessee
at its option may undertake whatever action may be necessary to correct or cure
any such defects, restrictions, liens, encumbrances or encroachments. At such
time as title is satisfactory to Lessee, it will pay the purchase price to
Lessor in exchange for the Bargain and Sale Deed with Covenant Against
Grantor's Acts conveying the Premises to Lessee subject to such title and no
other restrictions. Lessor agrees to furnish to Lessee upon the closing a
policy of Title Insurance issued by the title company in the amount of the
purchase price, showing good and marketable title and Lessee, subject only to
the exceptions as are satisfactory to Lessee contained in the deed from Lessor
conveying title to Lessee. In the event that Lessee shall raise objection to
the Lessor's title which, if valid, would render title unmarketable, then the
Lessor shall have the right to cancel this agreement of sale and purchase by
giving written notice of such cancellation to the Lessee, provided however, if
the Lessor shall be able within a reasonable length of time cure the objection,
or if thereafter either party secures a commitment for title insurance at
standard rates to insure against the objection raised or title insurance
acceptable to the Lessee, the Lessor shall pay the cost of such title insurance
and in such event this agreement of sale and purchase shall remain and continue
in full force and effect. Transfer of personal property, if any, included in
such sale shall be made by Lessor's bill of sale with no warranty. Unless
otherwise expressly stipulated all sales, assessments and
<PAGE> 40
37
rentals shall be pro-rated as of the date of transfer of title. Special
assessments, if any, shall be paid in full by Lessor, whether due or to become
due.
XV. MECHANIC'S LIENS
Lessor and Lessee shall not suffer or permit any mechanic's or other
liens to be filed against the Premises or any part thereof by reason of work,
labor, services or materials supplied or claimed to have been supplied to
Lessor, Lessee or anyone holding the Premises or any part thereof through or
under Lessor or Lessee. If any such lien shall be filed against the Premises,
Lessor or Lessee as the case may be shall cause the same to be discharged,
bonded or removed of record within thirty (30) calendar days after notification
in writing of the filing of the same, either by paying the amount claimed to be
due or by procuring the removal of such lien for the Premises by deposit in
court or by giving security or in such other manner as is, or may be prescribed
by law.
XVI. SIGNS
Lessee shall have the right to erect and maintain upon the Premises, at
Lessee's expense, all signs necessary or appropriate to the conduct of the
business of Lessee which are not in violation of any governmental rule or
regulation provided, however, that Lessee shall not have the right to erect or
maintain on the Premises any sign, the erection, maintenance or removal of
which will operate to decrease the value of the Premises, cause a default under
any Mortgage, or impair the structural integrity of the Building, without the
Lessor's prior consent in writing. Any signs placed in or upon the Premises,
upon the written request of Lessor, shall be removed by Lessee at Lessee's
expense upon the expiration or sooner termination of this Lease, and all
damages caused by the removal of such sign shall be fully repaired at the cost
and expense of Lessee.
XVII. MISCELLANEOUS
(a) Upon request of either party both parties shall execute and
deliver a Notice of the Lease in form appropriate for recording acknowledging
the date the Term begins, and if this Lease is terminated before the Term
<PAGE> 41
38
expires, an instrument in such form acknowledging the date of termination of
this Lease. No consent or waiver, express or implied, by Lessor or Lessee to or
of any breach of any agreement or duty to the other shall be construed as a
consent or waiver of any other breach of the same or any other agreement or
duty. Whenever any approval or consent by Lessor or Lessee is expressly
required by this Lease the approval or consent shall not be unreasonably
withheld. The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except as otherwise provided herein that
Lessor shall be liable only for obligations accruing before the beginning of
the Term, or thereafter while owner of the Premises.
(b) Neither this Lease nor the rights or duties of Lessor or Lessee
under this Lease shall be changed, modified, waived, released or discharged in
any way except by an instrument in writing signed by Lessor and Lessee.
(c) This Lease shall be construed under and be governed by the laws
of the State of New York.
(d) Lessor, subject to the provisions contained in any Mortgage and
purchase option, termination option and right of first offer set forth
herein, shall be free to transfer all or any portion of its interest in the
Premises, from time to time during the Term, provided, however, that in
connection with each such transfer, Lessor shall cause each such transferee to
execute an assumption of the obligations of Lessor under this Lease (which in
each instance shall provide for a limitation on Lessor's liability in respect
of any such assumption similar to the provisions contained in Section X(g)
below). Lessor's liability under this Lease shall extend to only such period of
time as Lessor shall own the Premises, and thereafter, the liability of Lessor
under this Lease shall be binding only upon each subsequent owner of such
interest, to the extent and only so long as each such subsequent owner shall
acquire and retain such interest.
(e) If Lessee shall be in default in the performance of any of its
obligations hereunder, Lessee shall pay to Lessor, on demand, all expenses
incurred by Lessor as a result thereof, including reasonable attorneys' fees
and expenses. If Lessor shall be made a party to any litigation commenced
against Lessee or in respect of which Lessee shall be obligated under this
Lease to provide Lessor with counsel and if Lessee, at its expense, shall fail
<PAGE> 42
39
to provide Lessee with reputable counsel reasonably approved by Lessor, Lessee
shall pay all costs and reasonable attorneys' fees and expenses incurred by
Lessor in connection with such litigation.
(f) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstances, shall be declared
invalid or unenforceable by the final ruling of a court of competent
jurisdiction, not subject to appeal, the remaining terms, covenants,
conditions and provisions of this Lease, or the application of such term,
condition, covenant or provision to other persons or circumstances, shall not
be affected thereby and shall continue to be enforced and recognized as valid
agreements of the parties, and in the place of such invalid or unenforceable
provision, there shall be substituted a like, but valid, and enforceable
provision which comports with the findings of the aforesaid court and most
nearly accomplishes the original intention of the parties, as evidenced by this
Lease.
(g) Anything contained herein to the contrary notwithstanding, no
recourse shall be had for the payment of any sum payable under this Lease by
Lessor, or for (1) any claim based thereon, (2) any claim based on any other
obligation of Lessor under this Lease, or (3) otherwise in respect thereof,
against (i) CC&F Investment Company, CC&F East Limited Partnership, Lessor or
any partner thereof or any partner, officer, director, trustee, stockholder,
employee or beneficiary or any corporate general partner thereof; (ii) any
legal representative, heir, estate, successor or assignee thereof; (iii) any
corporation, partnership (or any partner, officer, director, trustee, stock-
holder, employee or beneficiary thereof), individual or entity to which the
Premises or any part thereof shall have been transferred or assigned by Lessor;
or (iv) any other person or entity, having any derivative liability under this
Lease based upon Lessor's obligations hereof. It is understood that all
obligations of Lessor under this Lease may not be enforced against any person
or entity or any property other than the Premises, the proceeds thereof, and/or
the right to set-off by Lessee as hereinafter described, provided that the
foregoing provisions of this Subsection (g) shall not prevent recourse to the
Premises and/or the proceeds thereof, or constitute a waiver, release or
discharge of any obligations of Lessor hereunder, subject to the limitation on
recourse against the persons, entities and properties
<PAGE> 43
40
specified in this Subsection (g); (ii) constitute a waiver of the right of
Lessee to pursue all applicable remedies in law or in equity (including,
without limitation, injunctive relief) with respect to collection against all
or any part of the Premises and/or the right to set off by Lessee as
hereinafter described, subject to the limitation on recourse against the
persons, entities and properties specified in this Subsection (g); or (iii)
prevent Lessee from (x) obtaining injunctive or other equitable relief for
failure of a person or entity to comply with the terms, covenants, conditions
and agreements set forth in this Lease, or (y) naming Lessor or any transferee
of any interest in the Premises as a party defendant in any action or suit,
subject to the limitation on recourse against persons, entities and properties
specified in this Subsection (g).
(h) In the event that this Lease shall expire or terminate, either
party hereto may, within three (3) years from the date of any such termination
or expiration, request the other party to execute a writing, in recordable form,
which shall confirm that this Lease shall have expired and/or terminated.
(i) The failure of any party to insist in anyone or more cases upon
the strict performance of any of the terms, covenants, conditions, provisions
or agreements contained in this Lease or to exercise any option, right, power
or remedy herein contained in the Lease or to exercise any option, right, power
or remedy herein contained shall not be construed as a waiver or a
relinquishment thereof for the future. The receipt and acceptance by Lessor of
Annual Fixed Rent, Additional Rent or any other payment, or the acceptance of
performance of anything required by this Lease to be performed, with knowledge
of the breach of any term, covenant, condition, provision or agreement
contained in this Lease, shall not be deemed a waiver of such breach, or shall
any such acceptance of Annual Fixed Rent or Additional Rent in a lesser amount
than is herein provided for (regardless of any endorsement on any check, or any
statement in any letter accompanying any payment of Annual Fixed Rent or
Additional Rent) operate or be construed either as an accord and satisfaction
or, in any manner other than as payment on account of any Annual Fixed Rent or
Additional Rent then unpaid by Lessee and no waiver by Lessor or Lessee of any
term, covenant, condition, provision or agreement of this Lease shall be deemed
to have been made unless expressed in writing and signed by
<PAGE> 44
41
the party making any such waiver. In the event Lessee or Lessor shall be in
default in the performance of any of its obligations under this Lease and an
action shall be brought for the enforcement thereof in which it shall be
determined that there has occurred default by the other party, the defaulting
party shall pay to the other party all the expenses incurred in connection
therewith including reasonable attorneys' fees.
(j) Notwithstanding anything in this Lease to the contrary, the
following obligations shall survive any expiration or earlier termination of
the Term: (i) the then outstanding obligations of Lessor or Lessee, as the case
may be, in respect of each indemnity agreement contained herein, (ii) each then
outstanding monetary obligation of Lessor or Lessee contained herein which
shall not then have been fully satisfied and (iii) each and every other
outstanding obligation of Lessor or Lessee hereunder which shall not then have
been fully performed.
XVIII. MORTGAGEE'S RIGHT TO CURE
No act or failure to act on the part of Lessor which would entitle
Lessee under the terms of this Lease, or by-law, to be relieved of Lessee's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i)
Lessee shall have first given written notice of Lessor's act or failure to act
to all Mortgagees of record, if any, specifying the act or failure to act on
the part of Lessor which could or would give basis to Lessee's rights; and (ii)
such Mortgagees, after receipt of such notice, have failed or refused to
correct or cure the condition complained of within a reasonable time there-
after; but nothing herein shall be deemed to impose any obligation on any such
Mortgagees to correct or cure any such condition. "Reasonable time" as used
above means and includes a reasonable time to obtain possession of the Premises
if the Mortgagee elects to do so and a reasonable time to correct or cure the
condition if such condition is determined to exist.
XIX. SET-OFF
In the event Lessor shall fail to perform any of its obligations or
covenants contained in the Lease, and Lessee obtains a judgment against Lessor
for such breach of this Lease, then Lessee may set-off against the Annual
<PAGE> 45
42
Fixed Rent due or coming due under this Lease the amount obtained by any such
judgment plus interest except, however, Lessee shall limit the amount to be
set-off to twenty percent (20%) of the amount of the then current Annual Fixed
Rent per month until such judgment plus interest is satisfied. In the event
there shall not be a sufficient period of time under the Lease to set-off the
entire judgment as hereinbefore described, the Lessee shall set-off the amount
of the judgment over the remaining period of the Lease.
XX. TERMINOLOGY; CAPTIONS
Where the context so requires or such interpretation is appropriate,
any work used herein denoting gender shall include all genders, natural or
artificial, and the singular and plural shall be interchangeable. The term
"Paragraph" shall refer to all paragraphs under the caption in question, where
appropriate. The captions of the various provisions of this Lease are for
convenience only and in no way define, limit or describe the scope of intent of
this Lease or the provisions which they recede or in any other manner affect
this Lease.
XXI. BROKER
Lessor and Lessee each represent to the other that they have not
entered into any agreement or incurred any obligations in connection with this
transaction which might result in the obligation to pay a brokerage commission
or fee to any real estate broker or other person or entity by reason of this
transaction including the event of sale or lease as provided herein. Each party
agrees to indemnify and hold the other party harmless from and against any
claim or demand by any broker or other person for bringing about this Lease or
any transaction contemplated herein who claims to have dealt with said
indemnifying party, including any expenses incurred in defending any such claim
or demand, including reasonable attorney's fees.
XXII. ENTIRE AGREEMENT
This Lease together with any written documents contemporaneously or
subsequently executed by both of the parties hereto constitutes the entire
agreement between the parties hereto, and no understanding or agreement, oral
<PAGE> 46
43
or written, exists between the parties except as expressly stated herein. No
modification, alteration or amendment of this Lease shall be valid unless made
in writing and signed by each of the parties hereto.
XXIII. EXAMINATION OF THE LEASE
Submission of this instrument for examination or signature by Lessee
does not constitute a reservation of or option to lease, and it is not
effective as a lease or otherwise until execution and delivery by both Lessor
and Lessee.
WITNESS execution under seal, in triplicate.
LESSOR:
CC&F Tonawanda Investment Company
a New York general partnership
By: CC&F East Limited Partnership
a Delaware limited partnership
Its managing general partner
By: CC&F Investors, Inc.
a Delaware corporation
Its general partner
By:
-----------------------------------
Its: Senior Vice President
----------------------------------
LESSEE:
Standard Oil Engineered Materials Company, a
division of STEMCOR Corporation, a Delaware
corporation
By:
-----------------------------------
Its: President
----------------------------------
<PAGE> 47
44
EXHIBIT A
FIRE TOWER DRIVE
ALL THAT TRACT OR PARCEL OF LAND situate in the Town of Tonawanda,
County of Erie, State of New York, being part of Lot 45 and 46, Township 12,
Range 8, of the Holland Land Company's Survey and more particularly bounded
and described as follows:
BEGINNING at a point located on the northerly highway boundary of Fire
Tower Drive (Extension) said point being 3528.15 feet westerly from the westerly
highway boundary of Two Mile Creek Road (66.0 feet wide) as measured along the
northerly highway boundary of Fire Tower Drive as dedicated to the Town of
Tonawanda and recorded in Liber 8858 Page 572 and Fire Tower Road Extension;
thence North 85 degrees -29'-35" West a distance of 35.21 feet; thence North 40
degrees -29'-35" West a distance of 198.20 feet; thence South 49 degrees
- -30'-25" West and along the southerly line of lands conveyed to Niagara Mohawk
Power Corporation a distance of 948.00 feet; thence easterly along the northerly
highway boundary of E.G.H. Youngmann Expressway on a curve to the left having a
radius of 1348.40 feet a distance of 756.43 feet; thence North 22
degrees-45'-25" East a distance of 504.96 feet; thence northwesterly along the
westerly highway boundary of Fire Tower Drive (Extension) on a curve to the
right having a radius of 85.0 feet a distance of 106.44 feet to the place or
point of beginning.
Containing 8.25 (plus or minus) Acres.
Subject to any easements, right of ways, agreements, etc. of record.
<PAGE> 48
EXHIBIT B
PLANS AND SPECIFICATIONS
STANDARD OIL ENGINEERED MATERIALS COMPANY
FIBERS DIVISION
NIAGARA FALLS MODERNIZATION
FIRE TOWER INDUSTRIAL PARK
BUILDING AND UTILITY SPECIFICATION
SPECIFICATION NO. MOD-041487-JP
PROJECT MANAGER: JOHN E. PILECKI Initials:
DATE: APRIL 14, 1987
-----------------------------
REVISED: JULY 22, 1987
-----------------------------
<PAGE> 49
I. PURPOSE AND SCOPE
The following specification is based on discussions with the Developer and an
evaluation of Standard Oil's facility requirements. This shall be considered a
performance specification and is intended to form the basis for a lease
agreement with the CC & F Tonawanda Investment Company. The Developer shall
construct a facility for the Fibers Division that meets or exceeds all sections
of this specification.
II. GENERAL CONDITIONS
1. Developer Work Scope: The Developer shall provide all
necessary engineering, supervision, design, management, labor,
equipment and materials necessary to design and construct the
building structure and associated facilities listed below and
detailed in this specification:
A. All required land purchases.
B. Site work and landscaping.
C. Complete construction of a 143,750 square foot
manufacturing and warehouse facility.
D. Construction of parking, road and loading dock
facilities.
E. Installation of all main utilities and usage metering
equipment, up to the connection point, within the
building, designated by Standard Oil.
F. A complete fire protection wet sprinkler system.
G. All building HVAC and lighting systems.
H. All building potable water and sanitary sewer
systems.
I. Specified interior painting and finishes.
J. Utility equipment screening for the electrical
substation.
K. Construction in accordance with all applicable codes.
L. All necessary building permits for the Developer work
scope.
M. Secure the Certificate of Occupancy jointly with the
Standard Oil Company.
N. Arrange for all temporary utilities and phone lines
required during construction.
2. Standard Oil Work Scope: The Standard Oil Engineered
Materials Company will be responsible for the following work
under the scope of this project:
A. Installation of all process, warehouse and office
equipment.
B. All process-related foundations and platforms.
C. Sanitary sewer discharge permits.
D. Air emission permits.
E. Utility distribution for all manufacturing and office
operations from the point of delivery by The Pioneer
Group.
F. Facility telephone system.
G. Facility security system.
H. All office furnishings.
I. A source of 480 volt, 3 phase, 60 HZ. electrical
power for use and extension by the Developer to
service the facility HVAC, lighting and general
building systems. One (1) 600 ampere distribution
panelboard or equal will be provided for the
Developer's use in distributing 480/277 volt power.
PAGE 1
<PAGE> 50
II. GENERAL CONDITIONS (Continued)
2. Standard Oil Work Scope (Continued)
J. All warehouse floor striping.
K. Material handling monorails and hoists.
L. The services of a full-time Project Manager to
coordinate Standard Oil's interests and requirements
during the design and construction of the facility by
the Developer.
M. All necessary building permits for Standard Oil's
work scope.
N. Standard Oil will provide its own construction
trailer if an on-site office is required.
III. DETAILED SPECIFICATIONS: Developer Responsibility
1. Site:
The selected site is located in the Town of Tonawanda's Fire
Tower Industrial Park and shall consist of approximately 8.25
acres of land located at the West end of Fire Tower Drive,
adjacent to the 1-290 expressway. The facility orientation and
location of services shall be as shown on the site plan
attached to the lease as Exhibit B-1. The Developer shall
purchase the required amount of land based on the final site
configuration and applicable town ordinances. The proper
zoning classification, for development of the site, shall be
secured.
The Developer shall request from the Town of Tonawanda such
approvals required that would allow for possible expansion of
the building in the future on the selected site. Standard Oil
shall be notified in writing, by the Developer, on the results
of the request.
2. Subsurface Soils Investigation:
A. Submit proposed soil boring location plan to Standard
Oil for engineering approval. Indicate location of
borings for the building, parking area an drives.
B. Submit the name of the proposed soil
boring/geotechnical engineering firm along with a
proposed soils evaluation plan for Standard Oil's
approval.
C. Submit boring logs indicating soil characteristics
per foot, blow count per foot, and depth of water
table.
D. Submit prior to foundation design a detailed
geotechnical engineering report including boring
logs. Recommendations should be included covering
foundation type, depth to allowable bearing material
and allowable bearing load. If compressible material
is encountered, an anticipated long term settlement
calculation should be made and included in the
report. Also include a recommendation for drive and
parking area fill, including depth of fill.
E. Provide to Standard Oil a recommended soil bearing
value that should be used by Standard Oil for the
design of its equipment and platform foundations.
PAGE 2
<PAGE> 51
II. GENERAL CONDITIONS (Continued)
2. Subsurface Soils Investigation (Continued)
NOTE: The requirements of Sections 2A, 2B, 2C and 3E have
been satisfied based on the report received from
Buffalo Drilling Company, Inc. dated 4/9/87.
3. Site Preparation:
A. All topsoil shall be stripped and stored for re-use
or removed from the site as required. The rear
triangular section of the site may be used for
spreading of any excess topsoil up to a reasonable
elevation. No mounding of the topsoil shall be
permitted.
B. All vegetation which shall impede construction or
detract from the architectural appearance of the
facility shall be removed off site.
C. Perform all excavation required to prepare the
building, parking and access road areas for the
required elevation.
D. All site grading shall be done to ensure positive
site drainage.
E. Perform all necessary soil borings and topographical
surveys for the building construction and submit for
Standard Oil review.
F. Finished grade shall be such that drainage is away
from the building and grade is less than or equal to
the building floor level.
4. Landscaping:
A. Complete all seeding for grass areas along the North,
West and East side of the building and in and around
the parking lot area per the final site plan approved
by Standard Oil.
B. Install landscaping, shrubs, trees, and bedding
around the perimeter of the office area sufficient to
meet industrial park requirements and provide a
suitable architectural appearance.
5. Building Foundations and Floor:
A. All concrete shall have a minimum compressive
strength of 3,500 lbs./sq. in. at 28 days. The
Developer shall take and test sample cylinders of any
significant pour, on a daily basis and provide
written test results to Standard Oil for review and
record purposes.
B. All concrete shall be air entrained.
C. Footings, foundations, and foundation walls shall be
reinforced concrete suitable for the loading and soil
conditions.
D. The foundation wall for the office area shall be at
the finished floor level. In the warehouse and main
manufacturing area approximately 1600 linear feet of
wall shall have a 4'-0" high, 8" thick concrete
foundation wall.
PAGE 3
<PAGE> 52
III. DETAILED SPECIFICATIONS (Continued)
5. Building Foundations and Floor (Continued)
E. All floors in the main office area and miscellaneous
facilities area shall be a minimum of 5" thick poured
concrete with 6 x 6 x 10/10 reinforcing and an emery
aggregate surface hardener in exposed floor areas. A
total area of 10,000 sq. ft.
F. All floors in the warehouse and main manufacturing
area shall be a minimum of 6" thick poured concrete
with 6 x 6 x 10/10 reinforcing and an emery aggregate
surface hardener. A total area of 133,750 sq. ft.
G. All foundation plans shall be submitted to Standard
Oil for review prior to the start of construction.
H. All structural fill shall be placed in 6 to 8 inch
loose lifts and uniformly compacted to a minimum of
95% of the maximum dry density, as determined by the
modified proctor method of compaction.
I. Compaction tests shall be performed and submitted to
Standard Oil on all fill areas below the concrete
floors. The test method and proposed area of coverage
shall be submitted to Standard Oil for approval prior
to the start of work.
J. Provide a submittal to Standard Oil on the proposed
surface hardener for evaluation purposes.
K. Floor slabs for the building shall be constructed
over a base course of well graded granular material
consisting of a crusher-run stone product. The base
course of select structural fill should be equal to
the floor slab thickness or 6", whichever is greater,
unless otherwise approved by Standard Oil. The select
structural fill must be compacted to at least 95% of
the maximum dry density as determined by the modified
proctor test.
L. A suitable moisture barrier shall be placed over the
well compacted base course to prevent floor dampness
within the building unless otherwise approved by
Standard Oil.
6. Building Dimensions:
A. The overall building shall cover an area of 143,750
sq. ft. and shall have essentially the configuration
of the preliminary floor plan submitted.
B. A 5,000 square foot office area, clear height
selected for proper architectural blend into the main
facility.
C. A 10,000 square foot manufacturing area having a
clear working height of 30 feet.
PAGE 4
<PAGE> 53
III. DETAILED SPECIFICATIONS (Continued)
6. Building Dimensions (Continued)
D. A 7,500 square foot area for maintenance, quality
control, lunchroom and locker rooms, clear working
height shall be determined by the building roof line.
E. 50,000 square feet of warehouse area having a minimum
clear working height of 22 feet, except for the West
wall of the warehouse where a minimum height of 24
feet shall be maintained.
F. 71,250 square feet of main manufacturing space having
a minimum clear working height of 18 feet.
7. Structural Steel:
A. The building shall be of the pre-engineered metal
building construction type as manufactured by Varco-
Pruden Systems.
B. Column spacing shall be 25 ft. x 50 ft. throughout
the entire building.
C. As a minimum, all perimeter columns and columns in
the main manufacturing area bordered by column lines
C to E and 9 to 25 shall be wide flange straight
columns. The remaining columns may be post type, at
the discretion of the Developer.
D. All structural steel shall receive a minimum of one
(1) coat of shop applied zinc rich primer paint.
E. The entire structure shall be designed for a minimum
live load of 40 P.S.F. and a wind loading of 20 P.S.F.
8. Roof Construction:
A. All roof sections shall be pitched for positive
drainage of storm water. No pockets shall exist on
the roof where water can collect.
B. The entire facility shall have an insulated metal
standing seam roof carrying a minimum guarantee of 20
years. As a minimum, the insulation rating of the
roof shall meet the requirements of the New York
State Energy Code.
C. Submit to Standard Oil, for review, details of the
proposed roofing system and the applicable
manufacturer's guarantee. The Developer shall
transfer the roof guarantee to Standard Oil who
agrees to abide by all provisions and conditions of
the guarantee.
D. All roof areas shall be designed for a minimum live
load of 40 PSF and wind uplift rating of I-90. Areas
susceptible to drifting or sliding snow shall be
designed according to MBMA recommended practices.
PAGE 5
<PAGE> 54
III. DETAILED SPECIFICATIONS (Continued)
8. Roof Construction (Continued)
E. Roof drainage shall be accomplished using a perimeter
gutter and downspout system, draining directly to the
storm sewer system, on the East side of the building
column line l to 12 and in front of the outdoor
electrical substation. All other roof areas may
drain directly on the ground and enter the storm
sewer through a stone bed, french drain type system.
F. The installed roof shall be of non-combustible
construction.
9. Office Construction:
A. The exterior wall construction shall be a curtain
wall type with a brick facing. The building structure
shall carry all loads.
B. Exterior windows shall be provided around the
perimeter of the offices. Windows shall be evenly
spaced with one (1) window in each fixed wall office
and two (2) windows in the conference room, as a
minimum. All windows shall be insulated tinted glass
with bronze anodized aluminum frames.
C. Interior construction shall consist of:
-- Five (5) 10' x 12' offices.
-- One (1) 12' x 14' office.
-- One (1) 12' x 20' conference room.
-- A 16' x 16' lobby and reception area.
-- A 20' x 16' restroom area.
D. Interior office partitions and the perimeter wall
finish shall be ultra wall vinyl covered drywall over
metal studs or equal.
E. The ceiling shall be suspended acoustical tile 2' x
2' grid construction with a reveal. Ceiling height
shall be 8'-6". All acoustical tile shall have a
Class l fire rating.
F. All office and restroom doors shall be solid core oak
with a stained finish.
G. Main office entry doors shall be double door type,
metal frame with glass panels to match the exterior
windows. A vestibule from the outside shall be
provided.
H. Restrooms shall be equipped with fixtures and all
necessary accessories, i.e. partitions, mirrors, towel
and paper dispensers, etc. Sinks shall be installed
set in a counter top cabinet. The quantity of
fixtures provided shall be as shown on the floor plan
attached to the lease as Exhibit B-4.
PAGE 6
<PAGE> 55
III. DETAILED SPECIFICATIONS (Continued)
9. Office Construction (Continued)
I. Restrooms shall have ceramic tile floors and walls.
J. All restroom facilities and the office entrance shall
meet handicap requirements.
K. The remaining office area shall be carpeted with a
high grade commercial carpet. Final carpet quality
shall be subject to Standard Oil approval.
10. Miscellaneous Facilities Construction:
A. A full height fire rated masonry block wall,
including all doors and penetrations, shall be
constructed to separate the office area from the
miscellaneous facilities area at column line F and to
separate the miscellaneous facilities area from the
main manufacturing area at column line E-12 to E-16
and F-12 to E-12.
B. Interior construction shall consist of:
-- 2,500 square feet of open maintenance shop
area.
-- 1,250 square feet of maintenance storage
including one (1) 10' x 10' office.
-- 1,500 square feet of quality control lab area
with two (2) 10' x 10' offices.
-- 700 square feet of lunch room area.
-- 1,550 square feet of area for an employee
entrance and locker room facilities.
C. All interior walls shall be of block masonry
construction and shall be 8'-8" high.
D. All doors and frames shall be hollow metal with a
painted finish.
E. All masonry walls shall have a semi-gloss painted
finish.
F. The ceiling in the open maintenance area and
maintenance storeroom shall be full height
and unfinished.
G. The ceilings in all remaining areas shall be
suspended acoustical tile 2' x 4' grid, suitable for
wet conditions where required.
H. A separate exterior entrance door shall be provided
at column line F-16 for use by the plant operating
personnel. No vestibule is required.
PAGE 7
<PAGE> 56
III. DETAILED SPECIFICATIONS (Continued)
10. Miscellaneous Facilities Construction (Continued)
I. Mandoors shall be provided per the preliminary floor
plan submitted by the Developer. An 8' wide x 10'
high motor operated overhead door shall be installed
to allow access from the main plant area into the
maintenance shop.
J. Locker room and restroom facilities shall be
sufficient to accommodate approximately 50 people and
shall include lavatory, shower and lockeroom space.
For design purposes anticipate 20% women and 80% men.
K. All facilities shall satisfy handicap requirements in
accordance with all applicable codes.
L. The lunchroom and quality control lab shall have
vinyl tile floors of good commercial quality.
M. Maintenance and storage area floors shall be concrete
with an emery aggregate surface hardener.
N. The employee entrance hallways and locker room
facilities including the employee restrooms shall
have quarry tile floors throughout.
D. Locker room, shower and toilet facilities shall
include all fixtures as well as necessary accessories.
11. Main Building Exterior:
A. The exterior of the warehouse and manufacturing areas
shall be 2" thick minimum prefabricated, factory
assembled insulated metal wall panels, sandwich
design, metal covered on both sides. The wall
insulation rating shall satisfy all energy code
requirements, panels shall be FM Class 1 rated.
B. The wall finish shall be a factory applied baked
enamel on both the interior and exterior surfaces.
The interior color shall be white or cream and the
exterior color shall be selected from standard
available finishes.
C. The exposed wall of the high bay section shall be
covered with a brick facing.
D. The Developer shall utilize suitable architectural
finishes on the exterior of the building in order to
obtain a first class appearance. Concepts shall be
reviewed with Standard Oil so as to avoid possible
building maintenance problems or undesirable image
presentations and shall be in keeping with the
elevations attached to the lease as Exhibit B-5.
E. A suitable number of mandoor exits shall be provided
on all sides of the building.
PAGE 8
<PAGE> 57
III. DETAILED SPECIFICATIONS (Continued)
11. Main Building Exterior (Continued)
F. All penetrations, openings and joints in the building
exterior, which are the result of work by the
Developer, shall be caulked, gasketed, weatherstripped
or otherwise sealed.
12. Main Manufacturing Area:
A. The main manufacturing area shall be considered as
the area bordered by column lines A to E and 9 to 25.
B. A main sprinkler valve room shall be constructed in
the Northeast corner of the building, approximately
8' wide x 25' long of block wall construction.
C. The Developer shall leave a section of floor unpoured
to allow Standard Oil to install its required floor
trenching, equipment foundations and process platform
foundations. The floor section includes approximately
the area bordered by column lines C to E and 9 to 17.
This area shall be left in a graded condition for use
by Standard Oil. After the foundations and trenching
are completed, Standard Oil will return the area to
the original graded condition and the Developer shall
return to install the required stone base and
concrete floor.
D. The roof structural steel shall be capable of
supporting four (4) process exhaust stacks, two (2) 2
ton monorails and process conduit racks as specified
and located by Standard Oil and as per the
preliminary floor plan.
E. The entire concrete floor area shall contain an emery
aggregate surface hardener to prevent concrete
dusting and facilitate proper floor cleaning and
maintenance.
F. The Developer shall coordinate with Standard Oil on
the installation of the main underground electrical
conduits prior to installation of the floor.
13. Warehouse Area:
A. The warehouse area shall be considered to be the area
bordered by column lines A to F and 1 to 9 on the
preliminary floor plan.
PAGE 9
<PAGE> 58
III. DETAILED SPECIFICATIONS (Continued)
13. Warehouse Area (Continued)
B. Interior construction shall consist of:
-- Two (2) 10' x 10' offices.
-- One (1) 5' x 10' restroom.
These facilities shall be installed along column line F and
between Columns 5 and 6.
C. The entire concrete floor area shall contain an emery
aggregate surface hardener to prevent concrete
dusting and facilitate proper floor cleaning and
maintenance.
D. Four (4) 8' wide x 9' high loading dock doors at a
suitable dock height complete with motor operated
doors, load levelers and dock shelters shall be
installed between columns F-7 and F-9.
E. One (1) 12' wide x 14' high grade level, motor
operated insulated roll up door shall be installed
adjacent to the loading dock area at column line F-7.
F. A mandoor shall be installed at each end of the
loading dock area.
G. The Developer shall provide to Standard Oil
guidelines which should be followed and permissible
loading limits for the installed floor.
14. Parking Area and Sidewalks:
A. A paved parking area shall be provided to accommodate
a minimum of sixty (60) cars for employees and
visitors.
B. Paving shall consist of a minimum of an 8" stone bed
covered with a 2" asphalt base course and a 1"
asphalt binder course. For paved areas exposed to
heavy truck traffic the stone bed thickness shall be
increased to a minimum of 12".
C. The entire parking lot area shall be sealed and
striped to include parking slots,
directional arrows, fire zones, handicap and visitor
slots. The final parking lot arrangement and layout
shall be in accordance with the site
plan attached to the lease as Exhibit B-1.
D. Parking barriers shall be provided for parking slots
adjacent to sidewalks and landscaped areas.
PAGE 10
<PAGE> 59
III. DETAILED SPECIFICATIONS (Continued)
14. Parking Area and Sidewalks (Continued)
E. A catch basin type drainage system shall be installed
for the parking lot area for removal of storm water.
F. Concrete sidewalks a minimum of 4" thick shall be
installed to provide access to the main office
entrance and the employee entrance from the parking
lot area.
G. All parking shall be located on the East side of the
building and shall not interfere with truck traffic
to the loading dock area. Parking for the office and
plant personnel may be separated but provisions shall
be made for adequate access and snow removal.
15. Road Work:
A. The Developer shall coordinate and install all
necessary roadways required for access to the
facility by truck traffic, employees, maintenance and
emergency vehicles.
B. Fire Tower Drive shall be extended approximately 400
ft. by the Town of Tonawanda. The Town of Tonawanda
shall extend Fire Tower Drive as a Class I road. The
construction shall consist of at least 12" of
foundation stone, 4" of graded stone, 2" of binder
and 1" of top asphalt. Any cost for installation of
this road shall be part of the Developer's cost and
included in the lease price quoted.
C. The roadways constructed by the Developer on the site
that will accommodate truck traffic up to the
concrete loading pad area, shown on the site plan
attached to the lease as Exhibit B-1, shall consist
of at least 12" of stone, 2" of binder and 1" of top
asphalt.
D. In particular, access roads shall be provided to
reach the main electrical substation and to provide
access for fire trucks as required and approved by
the local Fire Department. A gravel bed road to the
electrical substation shall be considered acceptable.
All other road areas shall have an asphalt surface.
16. Loading Dock Facilities:
A. Provide and install four (4) complete loading docks
including doors, docks, shelters or seals, truck
bumpers, dock levelers, and dock lights.
B. Provide one (1) overhead grade level door.
C. The dock area shall be sloped for safe truck
unloading and designed using sound engineering
practice. Provisions shall be made to level the truck
bed to the warehouse floor as much as possible to
avoid load shifting problems. The Developer shall
submit plans for construction of the loading dock
area and unloading pit for Standard Oil's review.
PAGE 11
<PAGE> 60
III. DETAILED SPECIFICATIONS (Continued)
16. Loading Dock Facilities (Continued)
D. The dock area shall consist of a minimum of a 3,000
square foot concrete well and pad area located in
front of the loading docks.
E. Adequate pad area shall be provided for a safe and
comfortable turnaround for trucks.
F. All necessary catch basins and/or lift stations shall
be provided for removal of all storm water from the
loading pit area and surrounding pavement.
G. Dock levelers shall be rated for a minimum capacity
of 25,000 lbs. and shall be a mechanical type,
manually operated, with a spring counter-balance
system. Equipment shall be Pioneer Manufacturing "P"
series or equal.
H. Sufficient paved area shall be provided to
accommodate bulk chemical deliveries by tanker truck.
The tanker truck must be able to get within 25 ft. of
column line F-10. Utilization of the North end of
the unloading pit is acceptable as long as provisions
are made for easy access to the building via a
stairway or other means from the North side of the
unloading pit.
I. A suitable concrete retaining wall shall be installed
on the South side of the loading dock area, with
safety handrails as required by code.
17. Contractor and Material Selection:
A. The Developer shall be responsible for the
qualification and selection of all contractors
performing work under the defined work scope and
shall be responsible for the overall quality of the
work performed.
B. Sound engineering and architectural practices shall
be applied to this project with strict adherence to
all state, federal and local building codes. In
conjunction with this work, the following technical
specifications shall be adopted as the standards for
construction practices:
-- AIA American Institute of Architects
-- ACI American Concrete Institute
-- AISC American Institute of Steel
Construction
-- ASIM American Society for Testing
Materials
-- AWSC American Welding Society Code
-- UL Underwriters Laboratory, Inc.
-- ASA American Standard Association
-- STI Steel Joist Institute
-- MBMA Material Building Manufacturers
Association
-- IEEE Institute of Electrical and
Electronic Engineering
-- NEMA National Electrical Manufacturers
Association
-- NFPA National Fire Protection Association
PAGE 12
<PAGE> 61
III. DETAILED SPECIFICATIONS (Continued)
17. Contractor and Material Selection (Continued)
B. ASHRAE American Society of Heating, Refrigeration
and Air-Conditioning Engineers.
ARI Air-Conditioning and Refrigeration Institute
SMACNA Sheet Metal and Air-Conditioning Contractors
Association
These specifications shall be used as a basis for establishing
building systems, specifications and standards.
Approvals will not be unreasonably withheld by Standard Oil,
provided the standards described in Paragraph A above are
followed. All approvals will be expedited by Standard Oil and
returned to the Developer within five (5) working days from
receipt of the submittal.
C. General engineering concepts and designs shall be
submitted to Standard Oil for their review to ensure
that the requirements of this specification are being
met. This shall include, but not be limited to,
structural foundation designs, mechanical and
electrical utility services and building systems.
D. All materials and equipment shall be new, unless
otherwise approved by Standard Oil.
E. Copies of all specifications and drawings issued to
subcontractors or prepared for construction of the
facility shall be issued to Standard Oil for
information purposes.
18. Permit and Code Compliance:
A. The site Developer shall be responsible for obtaining
all Town Planning Board approvals and required
building permits prior to start of the applicable
construction.
B. Installation of all sewer and water systems shall be
approved by the appropriate local and state
departments.
C. The design of the electrical service entrance and
service receiving equipment shall be approved by the
Niagara Mohawk Power Corporation.
PAGE 13
<PAGE> 62
III. DETAILED SPECIFICATIONS (Continued)
18. Permit and Code Compliance (Continued)
D. The Developer and its contractors shall comply with
all applicable codes and regulations, including but
not limited to the following:
-- New York State Energy Conservation
Construction Code.
-- New York State Building Code.
-- The Town of Tonawanda Industrial Park
Covenants.
-- Niagara Mohawk's specifications for services
above 15KV.
-- The National Electric Code.
-- All local fire ordinances.
-- The Town of Tonawanda local law No. 10-84
governing installation and
connection of sanitary sewers.
-- The Metal Building Manufacturers Association
(M.B.M.A.) Codes and Construction Guidelines.
-- All applicable sections of ASTM and ACI
standards.
-- O.S.H.A. regulations.
-- The Erie County Dept. of Health.
-- All other applicable State and local
construction codes and regulations.
IV. UTILITIES AND BUILDING SYSTEMS: Developer Responsibility
1. Main Water Service:
A. A complete water service shall be installed, to the
building, of sufficient capacity to handle all
process water, potable water and fire protection
water requirements for the facility.
B. The Developer shall provide a water main of not less
than 12" in diameter.
C. The water main shall enter the facility at the
Northeast corner of the building and then shall be
distributed overhead throughout the facility as
required. No under floor water lines shall be
permitted.
D. A process water main having a minimum size of 6" in
diameter and a capacity of 500 GPM shall be installed,
by the Developer, to column line E-12. A main shut-off
valve shall be installed at that point. Standard Oil
will extend the water service to satisfy the process
requirements.
E. Supply and install all necessary metering and a main
backflow preventer for the water service in
accordance with the requirements of the Town of
Tonawanda Water Department. A separate backflow
preventer for both the potable water system and the
process water system will be provided by Standard Oil
if necessary. A suitable by-pass shall be provided
around the main backflow preventer to allow for
annual testing without interrupting production.
PAGE 14
<PAGE> 63
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
1. Main Water Service (Continued)
F. The Developer shall obtain written assurance from the
Town that it will complete the looping together of an
8" diameter main and 12" diameter main at the
property line for improved service reliability.
G. Installation of a complete potable water system for
the facility per the Plumbing Section of this
specification.
H. Installation of a complete wet sprinkler system for
the facility per the Fire Protection Section of this
specification.
2. Main Sanitary Sewer:
A. The relocation of an existing 16" diameter forced
sewer main shall be coordinated with the Town. The
new location shall be out from under both the
building and any paved areas.
B. A main sanitary sewer having a minimum capacity of
500 GPM shall be installed from inside the building
at column line E-9 to the start of the Town gravity
sewer located due North of column line F-16. It shall
be acceptable to run this sewer beneath the building
floor as long as sufficient cleanouts are provided.
C. Install a minimum of one (1) inspection manhole per
local code 10-84.
D. Install a complete sanitary drain and venting system
for the facility per the Plumbing Section of this
specification.
3. Storm Water System:
A. A complete storm water system shall be installed for
removal of storm water from the entire building roof
area, the warehouse loading dock area and all other
paved areas.
B. A minimum of two (2) 18" storm sewer mains shall be
installed, one on the West and one on the East side
of the building. The mains shall then be connected to
the Town storm sewer mains located at the property
line. The line size may be graduated downward as it's
running South and loading diminishes .
C. Additional storm sewer branches, catch basins or lift
stations shall be installed as required for proper
removal of all storm water. The overall system
concept shall be submitted to Standard Oil for
review.
PAGE 15
<PAGE> 64
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
4. Natural Gas Service:
A. A main gas service shall be installed for the
facility having a suitable capacity for all building
heating and specified Standard Oil process
requirements. Provide to Standard Oil an estimated
annual gas consumption figure for the proposed
heating system.
B. Provide and install all necessary metering and
pressure regulation equipment.
C. Install a complete facility gas distribution system
for building heat per the HVAC Section of this
specification.
D. Deliver a service line for connection of process
equipment, to column line D-20, for extension by
Standard Oil. The line capacity shall be a minimum of
2,000 cu. ft./hr. to satisfy the process
requirements.
E. Provide a 3/4" service line to the Quality Control
lab for extension by Standard Oil.
5. Telephone System:
A. One (1) 4" underground conduit shall be installed,
from the property line to the building, entering at
column line G-16, for installation of the main
telephone trunk lines from New York Telephone.
B. The actual phone system will be purchased and
installed by the Standard Oil Company.
6. Main Electrical Service:
A. The power contract for this facility will be based on
the use of low cost PASNY replacement power. Per
Niagara Mohawk policy all costs associated with the
installation of the main service both on and off the
property are the responsibility of the customer.
B. These costs shall be considered a part of the
Developer's cost and included in the lease price
quoted.
C. The main service entrance shall be rated a minimum of
3,000 KVA, 3 phase, 60 HZ. Based on preliminary
discussions with Niagara Mohawk the only distribution
voltage available at this site that can accommodate
this size load is 23.0 KV.
D. The primary service line shall be designed and
installed up to the main receiving equipment by
Niagara Mohawk.
PAGE 16
<PAGE> 65
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
6. Main Electrical Service (Continued)
E. The Developer shall provide and install the main
receiving equipment. This equipment shall provide
primary service protection and billing metering
facilities in full accordance with Niagara Mohawk
requirements for services above 15,000 volts.
F. The receiving switchgear shall be either outdoor
rated or enclosed in a suitable building so as to
satisfy Niagara Mohawk requirements.
G. Provide a 3,000 KVA outdoor substation transformer to
step the voltage down from 23.0 KV to 4.16 KV for
distribution into the facility.
H. Provide and install all necessary power and control
connections between the main receiving switchgear and
the transformer.
I. Install four (4) 4" underground conduits from the
secondary of the transformer to inside the building
at column line A between columns 24 and 25. Install 5
KV shielded cables between the transformer secondary
and Standard Oil's switchgear, which will be located
within the Northwest corner of the building.
J. Standard Oil shall provide and install all necessary
secondary protection switchgear, cabling, conduit and
an in-plant unit substation to complete the service
entrance and reduce the voltage to 480/277 volts for
use in the facility.
K. The outdoor substation shall be designed and
constructed using sound engineering practice and in
compliance with the National Electric code.
L. Substation equipment shall all be new and shall
include as a minimum the main receiving switchgear,
the substation transformer, equipment foundations, a
suitable yard surface, grounding grid, lightning
protection, fencing, lighting, access road and
screening. All substation design concepts and
proposed equipment shall be submitted to Standard Oil
for review.
M. The main substation shall be located as close to the
building as permitted by code and between column
lines 24 and 25 at the Northwest corner of the
building. If an oil filled transformer is utilized,
suitable containment provisions shall be made for oil
spills, per the National Electric Code.
PAGE 17
<PAGE> 66
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
7. Plumbing System:
A. A complete potable water system shall be installed
for the facility as outlined in this section of the
specification.
B. A complete sanitary drain and venting system shall be
installed as outlined in this section of the
specification.
C. Main Office Facilities:
-- All restroom fixtures.
-- A minimum of one (1) drinking fountain.
-- A water heater to handle the requirements of
the restrooms.
D. Miscellaneous Facilities:
-- All locker room, restroom and shower
facilities and fixtures.
-- A minimum of one (1) floor drain in each
locker room area.
-- A minimum of two (2) floor drains in the
employee entrance hallway.
-- A slop sink in the janitor's closet.
-- A drinking fountain adjacent to the locker
rooms.
-- A base cabinet and sink in the lunchroom.
-- A minimum of one (1) floor drain in the
lunchroom and two (2) in the Quality Control
lab.
-- Hot and cold water taps and drain in the
Quality Control lab for extension by
Standard Oil.
-- A slop sink and drinking fountain in the
Maintenance Shop.
-- A minimum of two (2) floor drains in the
Maintenance Shop.
-- A water heater capable of handling all hot
water requirements. The hot water system
serving the shower area shall be of a quick
recovery type.
E. Warehouse and Main Manufacturing Facilities:
-- Provide a minimum of six (6) drinking
fountains. Electrical power will be provided
by Standard Oil.
-- Provide all necessary restroom fixtures for
the warehouse restroom, hot and cold water
and a slop sink in the loading dock area.
-- Provide a floor drain approximately every
2,500 square feet throughout this area. The
only exception shall be the process area
bordered by column lines C to E and 9 to 16
where Standard Oil will install floor
trenching for the process.
F. All venting shall be done in accordance with
all applicable plumbing codes.
G. All hot water heaters shall be gas or
electrically fired at the discretion of the
Developer.
H. All plumbing shall be designed and installed
using good engineering practice and in
accordance with all applicable codes.
PAGE 18
<PAGE> 67
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
8. Fire Protection System:
A. Exterior fire hydrants shall be installed as required
by the local Fire Department and Town codes.
B. The interior of the building shall be protected by a
complete wet sprinkler system throughout, except the
area bordered by column lines D to E and 14 to 19 as
well as the area column lines C to D and 14 to 15.
C. In the warehouse area the system shall be
hydraulically designed to provide 0.5 GPM/sq. ft.
over and including the most remote 2,000 square feet.
Sprinkler heads shall be 17/32" orifice rated at 286
degrees fahrenheit.
D. Hose connections shall be provided throughout the
warehouse rack structure for complete coverage.
Connections may be fed by the overhead sprinkler
system riser. Each connection should be equipped with
75 feet of 1-1/2" hose on a column mounted hose reel.
E. In the manufacturing areas the system shall be
hydraulically designed to provide 0.16 GPM/sq. ft.
over and including the most remote 3,000 square feet.
F. The water supply should be capable of providing a
minimum 1,500 GPM for 2 hours. The hydraulic system
design shall be based on residual pressure data
obtained at the site and submitted to Standard Oil
with the sprinkler drawings.
G. All plans for the proposed sprinkler system shall be
submitted to Standard Oil for review and approval by
their insurance branch.
H. No sprinklers shall be provided throughout the main
office area and miscellaneous facilities area
bordered by column lines E to G and 12 to 16.A
suitable fire wall or barrier shall separate this
area from the rest of the facility.
I. A sprinkler system alarm and sensor package complete
with battery back-up shall be installed near the main
sprinkler valve station. Alarm wiring for each riser
on the sprinkler system shall be brought to the area
of the main office for connection to Standard Oil's
security system.
J. Provide an audible alarm at the main sprinkler valve
station located in the Northeast corner of the
building.
K. No plastic pipe shall be permitted on any portions of
the wet sprinkler system.
PAGE 19
<PAGE> 68
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
9. Heating Ventilating and Air Conditioning System:
A. All necessary HVAC equipment for the facility shall be
new. All proposed HVAC equipment and system designs
shall be submitted to Standard Oil for review prior to
the ordering of equipment.
B. The warehouse heating system shall be designed to
maintain a minimum temperature of 60 degrees and
shall concentrate the heat in the designated
aisleways. The system shall be gas fired infrared.
C. The warehouse offices and restroom shall have a
separate heating and air conditioning unit. The unit
may be either gas or electric.
D. The main manufacturing area heating system shall
maintain a minimum temperature of 65 degrees. The
selected system shall consist of either gas fired air
rotation units or gas fired make-up air units.
E. All systems shall be designed to maintain a slightly
positive pressure throughout the building.
F. Sizing of the heating system units shall allow for
20,000 CFM of make-up air to compensate for process
exhausts.
G. Ventilation fans shall be provided throughout the
warehouse and manufacturing areas for summer time
operation.
H. The manufacturing area units shall be capable of
supplying up to 100% outside air to the building for
summer time operation. Winter/summer controls shall
be provided.
I. The Maintenance Shop shall be heated, with provisions
for outside air ventilation in the summer. The
Maintenance office shall be equipped with a separate
heating and air conditioning unit or optionally
connected to the miscellaneous facilities unit.
J. The Quality Control lab and offices shall be heated
and air conditioned.
K. The lunchroom shall be heated and air conditioned.
L. The locker rooms shall be heated with provisions for
outside air ventilation in the summer.
M. Provide all necessary ventilation equipment for the
restroom areas.
N. All heating units in the miscellaneous facilities
area shall be gas fired. Temperature control
throughout the miscellaneous manufacturing area shall
be within plus or minus 2 degrees fahrenheit of
setpoint. A minimum of two (2) thermostats shall be
provided. Provide control via averaging of the
different area temperatures, if necessary, to satisfy
temperature control specification. For example, if
the setpoint is 70 degrees F, the range of acceptable
temperature variation, throughout the space, shall be
from 68 degrees F to 72 degrees F.
PAGE 20
<PAGE> 69
IV. UTILITIES AND BUILDING SYSTEMS (Continued)
9. Heating Ventilating and Air Conditioning System (Continued)
O. The main office area shall be heated and air
conditioned to provide plus or minus 2 degrees
fahrenheit temperature control, from setpoint,
throughout the work space. The HVAC unit serving this
area shall make use of economizers and shall be gas
or electric fired at the discretion of the Developer.
A minimum of two (2) zone thermostats shall be
provided. For example, if the setpoint is 70 degrees F
the range of acceptable temperature variation,
throughout the space, shall be from 68 degrees F to
72 degrees F.
P. All units shall be sized properly for the anticipated
heating and cooling loads and shall be capable of
controlling the temperature within limits of the New
York State Energy Code and good engineering practice.
Perform all necessary system balancing and submit
performance test reports to Standard Oil for record
purposes and review.
Q. Heat contribution to the main manufacturing area from
process ovens is estimated at a maximum of
650,000 BTU/HR.
R. System installation shall include but shall not be
limited to all necessary equipment, ductwork, gas
piping and controls necessary to form a complete
system.
10. Electrical Wiring and Lighting:
A. A single 600 AMP circuit breaker and the equivalent
of one (1) 600 AMP distribution panelboard, 42
circuit with breakers, shall be provided by Standard
Oil, at column line D-14, as a source of 480/277
volt, 3 phase, 4 wire, 60 HZ power, to be utilized
and extended by the Developer for all building
facility wiring.
B. Provide all distribution panels and transformers
required to service the facility loads. Provide all
necessary lighting fixtures and lamps.
C. Provide all wiring and conduit systems required to
service the facility loads.
D. Facility loads shall include all HVAC units,
ventilation fans, sewer lift pumps, exterior
lighting, interior lighting, convenience receptacles,
drinking fountains, sprinkler alarms and overhead
doors.
E. All lighting shall be either 120 or 277 volt, 1
phase.
F. All interior lighting shall be either fluorescent or
metal halide. No high pressure sodium shall be
permitted due to color problems in Standard Oil's
process. Individual fixture size shall not exceed
400 watts.
G. Exterior lighting shall be high pressure sodium.
PAGE 21
<PAGE> 70
IV UTILITIES AND BUILDING SYSTEMS (Continued)
10. Electrical Wiring and Lighting (Continued)
H. Lighting systems shall be designed for the following
lighting levels unless restricted by the New York
State Energy Code or otherwise directed by Standard
Oil:
-- Warehouse area 40 F.C.
-- Manufacturing areas and plant offices 60 F.C.
-- Lunchroom 50 F.C.
-- Quality Control lab 100 F.C.
-- Locker rooms 50 F.C.
-- Main office area 80-100 F.C.
-- Office lobby and restrooms 50 F.C.
-- Parking area 5 F.C.
-- Outdoor substation 20 F.C.
All lighting systems shall be 277 volt. The lighting
levels listed above are based upon the following
number of fixtures:
-- Manufacturing and Warehouse (150) - 400 watt
metal halide.
-- Other interior areas (162) 2' x 4'
fluorescent troffers and (12) 2' x 2'
fluorescent troffers.
-- (15) 150 watt, high pressure sodium wall
packs located on the exterior of the building.
-- The parking lot shall be lit by high pressure
sodium fixtures set on poles in sufficient
quantity to produce the light level shown
above.
I. Provide emergency lighting throughout the building to
meet local code requirements.
J. Provide wall receptacles in all office areas per the
National Electric Code and to satisfy normal
convenience receptacle requirements.
K. The main office lighting panel shall have a minimum
of 50% spare capacity for use by Standard Oil in
connecting its office equipment and powering open
offices.
L. All wiring in the warehouse and manufacturing areas
shall be in conduit.
M. All exterior wiring shall be run underground in
conduit.
N. All wiring and fixture selection shall be done in
full accordance with the National Electric Code and
the New York State Energy Construction Code.
O. All electrical equipment and lighting fixtures shall
be submitted to Standard Oil for review along with
power distribution plans and lighting layouts.
PAGE 22
<PAGE> 71
V. PROJECT MANAGEMENT AND SCHEDULE: Developer Responsibility
1. Specific individuals shall be assigned the responsibility for
project control and contractor supervision as well as
coordination with the Town of Tonawanda, all regulating
authorities and Standard Oil management.
2. Schedule:
A. The main building and main utility work shall be
completed no later than March 1, 1988.
B. All interior systems and exterior yard work shall be
completed no later than July 1, 1988.
C. Standard Oil will begin its process installation work
in January 1988 with start-up expected by September
1, 1988.
D. A fast track scheduling approach shall be used for
the building construction in order to expedite the
completion of each phase.
E. Upon completion of a lease agreement the Developer
shall submit to Standard Oil a detailed schedule for
the completion of this project.
F. The schedule shall be reviewed, as a minimum, on a
monthly basis. Standard Oil shall be notified of any
significant delays or changes made to the project
that will impact the overall completion dates
established.
PAGE 23
<PAGE> 72
EXHIBIT C
WARRANTIES AND GUARANTEES
In the event all warranties and guarantees (as described in
Paragraphs IV(e) and IV(k) herein) have not been obtained by Lessor at the date
of this Lease, Exhibit C shall then be completed at a later date but in no
event later than thirty (30) days prior to the Lease Commencement Date.
<PAGE> 73
46
EXHIBIT D
TITLE EXCEPTIONS
----------------
<PAGE> 1
EXHIBIT 10.4
THIS LEASE AGREEMENT made this ____ day of August 1979 by and between
UNILAND DEVELOPMENT COMPANY, a general partnership, 260 Wales Avenue, Tonawanda,
New York 14150, hereinafter called "Landlord", and The Carborundum Company a
Corporation, P.O. Box 808, Niagara Falls, New York 14302 hereinafter called
"Tenant."
FIRST: DESCRIPTION. Landlord leases to Tenant and Tenant hereby takes
land and expansion space as well as office and warehouse space comprising
approximately of 21,500 square feet in a building located at 324 Creekside
Drive, Amherst, New York; more specifically designated on a plan attached hereto
and designated as Schedule "A" and made a part hereof.
SECOND: TERM. The term hereof shall commence on the 1st day of the
month following Tenant's acceptance of premises and continue for a period of
five (5) years.
THIRD: RENT. The total rent shall be $290,520.00 payable as follows:
$4,842.00 on or before the signing of the Lease and on the 1st day of the
second month of the tenancy and on the 1st day of each and every calendar month
thereafter, Tenant shall pay to Landlord the sum of $4,842.00 during the said
term. All rents shall be paid to Landlord or said authorized agent at 260 Wales
Avenue, Tonawanda, New York 14150 or at such other places as may be designated
by Landlord from time to time.
FOURTH: CONSTRUCTION OF PREMISES. Landlord, within 45 days of the
signing of the Lease shall cause to be built and completed in a building at 324
Creekside Drive, Amherst, N.Y.
-6-
<PAGE> 2
????????ing space in a portion of the premises (so delineated on Schedule "A"
attached, more specifically described in Schedule "B" attached hereto and made a
part hereof. Landlord, within 90 days of the signing of the Lease, shall cause
to be built and completed in a building at 324 Creekside Drive, Amherst, N.Y.
office and employee service space in a portion of the premises (so delineated on
Schedule "A" attached) more specifically described in Schedule "B" attached
hereto and made a part hereof. The premises shall be constructed in a good and
workmanlike manner. Landlord warrants that the premises will be constructed
with new materials of good quality and in accordance with all the currently
existing laws, ordinances and statutes of the municipal or State governments.
FIFTH: DELAYS IN CONSTRUCTION. In the event that all improvements
have not been completed within 120 days of the lease signing, Tenant shall have
the right but not the obligation to enter into possession of such portions as
may be ready for occupancy and Landlord shall diligently proceed so as to place
the premises in conformance with Schedule "B" within 150 days of lease
signing. During such period of partial occupancy, the rent to be paid
hereunder shall be apportioned as to include only that floor space actually
occupied by Tenant. For the purposes of apportionment of rent under this
Paragraph and Paragraph "Fourth" only, it is agreed that office space shall be
let for $5.75 per square foot. Land and manufacturing area shall be let for
$2.10 per square foot. No entering into possession by Tenant of any portion of
the premises under the provisions of this paragraph shall constitute a waiver
of Landlord's obligation to complete unfinished items of construction or to
correct defective work so long as to bring the improvements in accordance with
Schedule "B". If Landlord is unable to deliver possession of one day of
manufacturing space within forty-five (45) days of lease signing or of total
premises within 150 days of lease signing, Tenant may terminate this Lease and
all advanced rents and security deposits shall be refunded by Landlord to
Tenant.
<PAGE> 3
?????????????????? anticipates that Tenant shall receive shipment of necessary
equipment on or about the second week of September. Landlord agrees that an
area of 1,200 square feet shall be built and completed prior to the anticipated
delivery date and that Tenant shall have the right to accept delivery of the
equipment at the premises and store the equipment within the said 1,200 square
foot area.
SIXTH: POSSESSION. The entire premises shall be considered ready for
possession and Tenant shall accept the entire premises when:
A) The building has been substantially completed including interior
finishes, and
B) All necessary interior utility fixtures and equipment have been
installed, and
C) All access and service routes and areas and the parking services
are substantially completed, as the weather conditions allow (at least to the
extent that they are covered with stone), and in usable condition; and
D) Ten (10) days notice has been provided to Tenant that the premises
are ready for occupancy by Tenant, and Landlord furnishes Tenant with a copy of
the temporary occupancy permit. If the manufacturing portion of the premises
are ready for occupancy prior to 45 days from the signing of this Lease, Tenant
shall accept premises when deemed ready, and shall pay to Landlord additional
rent apportioned to Tenant's additional part of premises. Landlord shall allow
Tenant early entrance on the premises to prepare the premises for installation
of Tenant's fixtures, provided Tenant shall obtain prior written consent of
Landlord, which consent shall not be unreasonably withheld, and Tenant shall
obey all reasonable restrictions of Landlord and shall prepare premises in a
manner so as not to interfere with Landlord's construction of premises.
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<PAGE> 4
E) When the above conditions are deemed satisfied, Tenant shall execute
and deliver to Landlord the acknowledgment of possession attached to Lease and
delineated as Schedule "C" and made a part hereof.
SEVENTH: USE. The premises shall be used and occupied by Tenant for
office and manufacturing space, providing same does not cause excessive odor,
vibration, fumes, noise and/or other nuisance beyond the confines of premises
and said use does not result in deterioration of premises or building in which
premises is located. Tenant will not permit the accumulation of waste or refuse
matter on or in the vicinity of the demised premises or the building in which
said premises is located; Tenant will not obstruct or permit the obstruction of
streets, or sidewalks adjacent thereto.
EIGHTH: SUBLETTING. Tenant shall not assign nor sublet this Lease
without the prior written consent of the Landlord, which consent the Landlord
agrees shall not be unreasonably withheld. Excepting, Tenant shall have the
right to assign or sublease premises to parent or a subsidiary without
Landlord's prior written consent. If Landlord so consents to such an assignment
or subletting, Tenant shall have the right to modify the premises to the
specification of the Assignee or Subtenant with prior written consent of the
Landlord, which consent shall not be unreasonably withheld.
NINTH: MAINTENANCE. Landlord shall, at its own expense except for
Tenant's negligence, maintain the structural portion of the building which
includes: roof, exterior walls (excluding window glass), foundation, interior
floors (excluding floor finishing such
<PAGE> 5
tenancy Landlord shall at its own expense, except for Tenant's negligence,
maintain all mechanical systems of the premises; Tenant shall throughout the
term of the Lease and renewal thereof, at its own expense, maintain all
mechanical systems following the first ???. All repairs and alterations made
by the Tenant shall comply with federal, state and local governments' laws,
rules, orders and ordinances, and regulations at any time issued or enforced,
applicable to the demised premises. Tenant shall not make any structural
alteration to the premises without prior written consent of Landlord, which
consent shall not be unreasonably withheld.
TENTH: LIABILITY. Landlord shall not be liable for, and Tenant agrees
to hold Landlord harmless from any claims for damage injury to Tenant or any
other person, or to any property, occurring on the demised premises, or any
part thereof, unless such liability shall accrue as a result of Landlord's
negligence or Landlord's failure to perform the covenants of this lease on its
part to be performed.
ELEVENTH: LIABILITY INSURANCE. Tenant, at its expense, shall maintain
the following:
A) LIABILITY. Liability and property damage insurance, insuring
Tenant and Landlord with a minimum coverage as follows: Five Hundred Thousand
($500,000.00) Dollars per person and One Million ($1,000,000.00) Dollars per
event for personal injury; One Hundred Thousand ($100,000.00) Dollars property
damage. Tenant shall provide Landlord with a certificate of insurance showing
Landlord as additional insured. The certificate shall provide for a ten (10)
day written notice to Landlord in the event of cancellation or material change
of coverage. This insurance may be provided as part of blanket coverage by
Tenant. Landlord and Tenant hereby release one another from all liability
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<PAGE> 6
year of tenancy. Landlord shall maintain the exterior portion of the building,
including the parking area, curbs, sidewalks, grass and shrubbery, and external
lighting, all at Tenant's expense as delineated in Paragraph TWELFTH herein.
Throughout the term of the Lease or any renewal thereof Tenant shall maintain
the remaining portion of the premises, including but not limited to, interior
walls and wall finishings; carpeting and other floor finishings; ceiling,
tile; lavatories and fixtures therein, and the like, and shall surrender same
in as good a condition as received, normal wear and tear accepted.
<PAGE> 7
for any loss or damage caused by fire or any other risks enumerated in standard
insurance and extended coverage insurance. This release is conditioned upon
the inclusion in the respective policies of insurance an endorsement or
provision stating that such release will not adversely affect said policies or
prejudice any right of the insured to recover thereunder. Landlord and Tenant
agree that their respective insurance policies will include the aforesaid
provision or endorsement so long as the same is obtainable without extra cost,
or if extra costs should be charged, so long as the party for whose benefit the
clause is obtained shall pay for such extra costs. If extra costs shall be
chargeable therefor, the party so affected shall advise the other of the amount
of extra costs and the other party, at its election, may pay the same or
decline to so pay, in which event the release from liability given to said
party by this section shall be deemed to be withdrawn.
TWELFTH: ADDITIONAL RENT. As additional rent hereunder, Tenant
shall pay to Landlord its proportionate share of the following: (Tenant's
proportionate share shall be defined as follows: if Tenant occupies the entire
building, its proportionate share shall be one hundred (100%) percent; if
Tenant does not occupy the entire building, floor space shall be the factor in
determining the proportionate share of increases to be borne by Tenant for the
purposes of such computation).
(1) Tenants proportionate share of increases in Fire and Extended
Coverage Insurance premiums on the same basis as increase in real estate taxes;
however, an increase in premiums attributable solely to Tenant's use of premises
shall be paid completely by Tenant, and any increase in premiums resulting from
a use by Tenant (other than Tenant herein) of the building in which the demised
premises are located, which use is deemed extra
<PAGE> 8
hazardous by the insurance carrier, shall first be pro rated out of the
insurance premium. Landlord shall, at the request of the Tenant, provide an
explanation of any premium increase hereunder. Landlord, at its expense shall
maintain insurance against fire and such hazards as are included from time to
time within the so called Extended Coverage endorsement in amounts sufficient to
prevent application of co-insurance clauses.
(2) All state, municipal and local taxes (except gift, estate,
inheritance, succession, and income taxes, if any, on the interest of the
Landlord) assessments, levies and other charges general and special ordinary and
extra-ordinary, in whatever name, nature and kind, (except as specified above)
that are or may be during the term hereof, or any renewal, (beginning with the
commencement of the term hereof) levied, assessed, imposed, or charged on the
Premises and all of which may be levied, assessed, imposed, or charged on or
against the leasehold estate hereby created during the term hereof. The taxes,
assessments, levies and other charges, shall be paid in the name of the
Landlord, and Landlord shall pay the same as specified above whether such taxes
or charges become due and payable during the term hereof or any renewal, or
subsequent to the expiration or sooner termination hereof, however, Tenant shall
be liable for taxes pro-rated only until the date of termination. If, at any
time during the term of this Lease, the present method of taxation or assessment
shall be changed so that the whole or any part of the taxes, assessments, levies
or charges now levied, assessed and imposed on the real estate hereby demised
and improvements thereon, shall be transferred to the rentals received from such
real property in whole or in part, or against such rentals in whole or in part,
and if partly on such real estate and partly on such rentals, Tenant shall pay
such proportionate share of taxes and
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<PAGE> 9
assessments levied and assessed on such rentals as shall proportionately
relieve the taxes and assessments on such real estate, it being the intention
of the parties hereto that Landlord shall receive the rents reserved herein
without deduction of taxes (except gift, estate, inheritance, succession, and
income taxes on the interest of the Landlord), assessments, levies, or charges
in respect to the real estate and improvements thereon, but that the Tenant
shall not be obligated to pay full taxes and assessments on such real estate
and improvements and also on such rentals. Tenant shall have the right, at its
own expense, to contest any taxes or assessments in the name of Landlord and
Landlord shall cooperate in any proceedings arising out of Tenant's exercise of
this right.
(3) Exterior maintenance expenses including snow removal, landscaping
and grounds maintainance, driveway and parking lot sealing and striping,
external lighting and the like.
(4) Utility expense for electrical service to the external portion of
the building for external lighting, deep-dock pumps and other exterior use;
water and sprinkler service expense of the building wherein the premises is
located.
(5) All additional rent due and owing under this Paragraph "Twelfth"
shall be paid by Tenant to Landlord within 45 days following the date of the
billing of Landlord for same. Tenant shall have the right to review any
contracts for chargeable expenses and obtain bids for alternative sources of
services.
THIRTEENTH: UTILITIES. Tenant agrees that it shall be responsible for
the payment of all utilities, including water, gas, electricity, heat or other
services delivered to the premises; Landlord shall provide separate metering
for all services. Landlord shall not be responsible for failure of, or lack of
water, gas, electricity, or other fuel, except for Landlord's negligence or
Landlord's failure to perform the covenants of this Lease on its part to be
performed.
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<PAGE> 10
FOURTEENTH: COMPLIANCE WITH LAWS. From and after entering into
possession, subject to Landlord's duties and obligations to repair as contained
in Paragraph "Ninth" Tenant shall comply with all statutes, ordinances, and
requirements of all municipal, State and Federal authorities now in force or
which may hereafter be in force, pertaining to the premises, occasioned by the
use of the premises by Tenant. The commencement or pendency of any municipal,
State or Federal proceeding alleging a violation which would affect the use of
the premises shall, at the option of the Landlord, and subject to the notice
provisions of Paragraph "TWENTY-SECOND" be deemed a breach hereof, providing,
however, the commencement of such proceedings shall not be a breach hereof, if:
A) Tenant diligently takes action to comply with such statute,
ordinance or other requirements, or
B) Tenant, in good faith, contest such proceeding to a final
determination, and thereafter complies with such order as may issue. (In any
such contest, Tenant will take such action(s), including deposit of security,
as may be reasonably necessary to prevent a forfeiture of landlord's title.)
Notwithstanding this Paragraph "Fourteenth", if after Tenant has been found to
be in violation of any statute, ordinance or requirement of any municipal,
State or Federal authority now in force or hereinafter in force, pertaining to
Tenant's use of the premises, and fails to correct the same, Landlord shall
have the right to take whatever action necessary to place demised premises in
compliance with any statute, ordinance and requirement of all municipal, State
and Federal authorities now in force or which hereinafter may be in force and
to charge Tenant the costs thereof as additional rent for this action, landlord
represents that the premises will be in compliance with all statutes,
ordinances and requirements by October 1st, 1979 or whenever premises is deemed
completed.
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<PAGE> 11
FIFTEENTH: LANDLORD'S ACCESS. Tenant shall permit Landlord, or
Landlord's agent to enter upon the premises at reasonable times and upon
reasonable notice, for the purpose of inspecting the same, and will permit
Tenant at any time within one hundred twenty (120) days prior to the expiration
of the Lease, to place upon the premises any usual "To Let" or "For Lease"
signs, and at reasonable times and upon reasonable notice permit persons
desiring to lease the same to inspect the premises thereafter. Landlord shall
at time permitted by this Lease, have the right to enter demised premises for
the purpose of making repairs or structural changes to said premises or building
commonly known as 324 Creekside Drive, Amherst, New York. Any such repairs or
structural changes will be made with reasonable dispatch and in a manner to
interfere as little as possible with Tenant's use and enjoyment of the demised
premises.
SIXTEENTH: RESERVATIONS. Landlord reserves the right to maintain
uniformity and conformity for signs of all tenants if the building in which the
demised premises is located. Landlord shall within thirty (30) days of Tenant's
occupancy of the demised premises provide Tenant with specifications for its
signing and Tenant may at its own expense construct a sign in accordance with
the aforesaid specifications. Any use by Landlord of the name or logo of Tenant
on signs, or otherwise, shall be subject to prior written consent of Tenant.
SEVENTEENTH: CONDEMNATION. (a) In the event that an area materially
affecting Tenant's ability to conduct its intended business on the premises
shall be taken, or access to the premises shall be taken in any proceeding by
the public authorities, by condemnation or by deed in or be acquired for public
or quasi-public purposes, the Tenant shall have the option
<PAGE> 12
of terminating this Lease, in which case any unearned rent shall be refunded to
the Tenant. The said option to terminate shall be exercisable by written notice
given by the Tenant to the Landlord not later than sixty (60) days following
notice to the Tenant by Landlord of such condemnation or acquisition. In the
event that less than such area of the premises be taken in any such condemnation
or other proceeding or be acquired for public or quasi-public purposes, or if
such area of the premises shall be taken, and Tenant does not elect to terminate
this Lease, then the Landlord shall restore the premises to the end that the
premises shall be restored so far as practicable to the
condition existing immediately prior to such taking, and the rent and additional
rent shall be reduced in the same proportion that the amount of floor area in
the building is reduced by such condemnation or other proceeding, or by such
acquisition.
(b) In the event of a condemnation of more than eighty (80%) percent of
the premises or the building in which the premises is located or in the event of
any termination of this Lease by virtue of condemnation as provided in Paragraph
(a) of this Paragraph "Seventeenth," this Lease shall terminate and the Tenant
shall not be entitled to any part of the award or awards made, provided however,
that Tenant may make a claim for loss of Tenant's fixtures, loss of business and
relocation expenses.
(c) Anything contained in Paragraph (a) of this Paragraph "Seventeenth"
to the contrary notwithstanding, the Landlord shall not be required to repair or
rebuild the premises during the last year of the original term of any renewal
term thereof of this Lease.
EIGHTEENTH: IMPROVEMENTS Title to any and all improvements by Tenant
made to premises during the term hereof shall vest in Landlord, (except trade
fixtures of Tenant) as of
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<PAGE> 13
the end of the term of this Lease or any earlier termination. Tenant may, upon
termination hereof, remove all its trade fixtures, but shall repair or pay for
all repairs necessary for damages to the premises occasioned by removal.
NINETEENTH: DESTRUCTION (a) In the event of a partial destruction of
the premises at any time prior to the last year of the Lease, or the last year
of any renewal term thereof, the Lease shall continue with rent proportionate
abated, and Landlord shall restore premises to substantially its original
condition.
(b) In the event of a partial destruction of the premises, from any
cause, Landlord shall forthwith repair the same, provided that such repairs can
be made within sixty (60) days from the partial destruction of premises under
existing governmental laws and regulations but such partial destruction shall
not terminate this Lease. Tenant shall be entitled to a proportionate reduction
of rent while such repairs are being made. If such repairs cannot be made
within said sixty (60) days, Landlord shall within the first twenty-five (25)
days after partial destruction of premises, notify Tenant that repairs cannot be
completed within sixty (60) days, and within five (5) days after such
notification, Tenant shall, at its option, notify Landlord of its intent to
remain upon premises or cancel this Lease, and if Tenant remains, Landlord shall
have ninety (90) days from that date to complete repair, rent to be
proportionately reduced as aforesaid Repairs which cannot be completed within
ninety (90) days shall be done only with the election of both Landlord and
Tenant. If such partial damage is done due to the fault or negligence of
Tenant, Tenant's servants, employees, agents, visitors or licensees, the damages
shall be repaired by Landlord, but there will be no apportionment or rent. In
the event that the building in which the demised premises may be situated is
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<PAGE> 14
destroyed to an extent more than one half (1/2) of the replacement costs
thereof, either Landlord or Tenant may terminate this Lease.
TWENTIETH: TENANT DEFAULT Tenant shall be able to vacate or abandon
the premises at any time during the term hereof; however, all other terms and
conditions of this Lease shall continue in full force and effect and Tenant
will not be relieved of its obligation to maintain the premises as if
occupied. In the event that a receiver shall be appointed to take over the
business of Tenant, or in the event that Tenant shall make a general assignment
for the benefit of creditors, or Tenant shall take or suffer any action under
any insolvency or bankruptcy act, provided such action shall not be vacated
within one hundred twenty (120) consecutive days and from the filing of such
an insolvency or bankruptcy action, the same shall constitute a breach of this
Lease by Tenant.
TWENTY-FIRST: RIGHT TO PERFORM If a notice of mechanic's lien be filed
against the demised premises for, or purporting to be for, labor or material
alleged to have been furnished, or to be furnished to or for any party hereto at
the demised premises, and if such party shall fail to take such action as shall
cause such lien to be removed from the record by discharge, deposit or bonding
proceedings, within fifteen (15) days after such party received notice of the
filing of such lien, any other party may pay the amount of such lien or
discharge the same by deposit or by bonding proceedings, and in the event of
such deposit or bonding proceedings, such other party may require the lienor to
prosecute an appropriate action to enforce the lienor's claim. (In such case,
any party may pay any judgment recovered on such claim.) Any amount paid or
expense incurred by Landlord or Tenant as in this paragraph of this Lease
provided, and any amount as to which Tenant shall at any time be in default
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<PAGE> 15
for or in respect to the use of water, electric current or sprinkler supervisory
service provided the same are liens against demised premises shall be added to
or deducted from succeeding rental payments as may be appropriate.
TWENTY-SECOND: RE-ENTRY In the event of any breach of this Lease by
Tenant, Landlord, besides other rights and remedies he may have, shall have the
immediate right of re-entry and may remove all persons and property from the
premises. Such property may be moved and stored in a public warehouse or
elsewhere at the cost of, and for the account of, Tenant. Should Landlord
elect to re-enter, or should he take possession pursuant to legal proceedings
or any notice provided by law, he may either terminate this Lease or may from
time to time, without terminating this lease, relet said premises, or any part
thereof, for which term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such terms and
conditions as Landlord in its sole discretion, may deem advisable with the
right to alter or repair the premises upon such re-letting. In such event,
Tenant shall be immediately liable to pay to Landlord, in addition to any
other amounts due hereunder at the option of Landlord either: (2) the cost and
expense of such re-letting and such alterations and/or repairs, and any amount
which the rent reserved herein for the period of such re-letting but not beyond
the term hereof, exceeds the amount agreed to be paid as rent for such period,
or (b) rents received by Landlord from such re-letting shall be applied first
to the repayment of indebtedness other than rent due hereunder, second to costs
and expenses of re-letting and alterations or repairs, and third to the payment
of rent due and unpaid hereunder and the residue, if any, shall be held by
Landlord and applied in payment of future rent as the same may become due and
payable. Tenant shall be credited only with rent actually received by
Landlord.
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<PAGE> 16
Tenant shall, in such event, pay any deficiency between the amount due from
Tenant to Landlord and the amount credited. No such re-entry or taking
possession by Landlord shall be construed as an election to terminate this
Lease unless written notice of such intention is given, or unless termination
be declared by a Court of competent jurisdiction. Notwithstanding any such
re-letting without termination, Landlord may at any time thereafter elect to
terminate this Lease on account of such previous breach. Should Landlord at
anytime terminate this Lease for any breach, in addition to any other remedy it
may have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the premises, and including the worth
at the time of such termination of the excess, if any, of the amount of said
rent and charges equivalent to the rent reserved for over the then reasonable
value of the premises for the remainder of the term.
Notwithstanding this Paragraph "Twenty-Second," and as a condition
precedent to the exercise of any remedy under this lease by Landlord:
(a) Landlord shall given Tenant notice in writing of Tenant's failure
to pay rent and/or real estate taxes and other, if any, obligations satisfied
by payment of money, and if Tenant shall pay the same within ten (10) days of
receipt of said notice, Tenant shall not be in default or breach of this Lease;
(b) Landlord shall give Tenant notice in writing of any other default
or breach which cannot be corrected by the payment of money, and if Tenant
shall correct the same within twenty (20) days of receipt of said notice,
Tenant shall not be in default or breach hereunder, provided, however, if the
breach or default is such that it may not be corrected within said twenty (20)
day period, but Tenant commences to correct the same within said period, and
diligently continues to correct same, Tenant shall not be in default or breach
hereof.
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<PAGE> 17
TWENTY-THIRD: LANDLORD'S NOTICE In any breach of the Lease by
Landlord, Tenant shall be bound by the same notice requirements as the Landlord
in Paragraph "Twenty-Second."
TWENTY-FOURTH: ACCESS ROAD Landlord grants to Tenant the right of
non-exclusive ingress and egress along the private road delineated as Area "C"
in Schedule "A." Such road shall be for the use and enjoyment for ingress and
egress and installation of utilities and services by owners, lawful occupants
and tenants of Landlord, and Tenant shall not obstruct such access road.
Tenant grants to Landlord the right of non-exclusive ingress and egress through
Area "B" (parking areas) delineated in Schedule "A." The right of
non-exclusive ingress and egress shall be for the use and enjoyment for ingress
and egress and installation of utilities and services by owners, lawful
occupants and tenants of Landlord, and Landlord shall not obstruct such
Area "B."
Providing Tenant is not in default of the terms and conditions of this
Lease, and a mortgagee shall foreclose on any mortgage affecting the premises,
access road, or any premises enjoying the use of said road, the use and
enjoyment of the right of way for ingress and egress shall not be disturbed by
said action to foreclose said mortgage.
Tenant shall execute any document required by Landlord to enforce the
terms and conditions of this paragraph provided said does not diminish Tenant's
rights hereunder.
TWENTY-FIFTH: SUBORDINATION This Lease shall be subject and
subordinate at all times to the lien of the mortgages now on the demised
premises, and all advances made or hereafter to be made upon the security
thereof; and subject and subordinate to the lien of any future mortgage or
mortgages including
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<PAGE> 18
purchase money mortgages, which may be a lien upon the premises, provided,
however, that any such mortgage or mortgages shall provide that in any
foreclosure proceedings, Tenant will not be made a party thereunder and in any
sale in such foreclosure proceeding, this Lease shall remain undisturbed and in
full force and effect provided Tenant is not in default hereunder.
TWENTY-SIXTH: METHOD OF NOTICE Any notice or demand which under the
terms of this Lease or under any statute must or may be given or made by the
parties hereto shall be in writing and shall be given or made by mailing the
same by certified or registered mail addressed to the respective parties at the
addresses set forth in this Lease, or such other address as each of the parties
hereto may from time to time designate by notice to the other.
TWENTY-SEVENTH: ADDITIONAL RENT If Tenant shall at any time be in
default hereunder, and if Landlord shall institute an action or summary
proceeding against Tenant based upon such default, then Tenant will reimburse
Landlord for the expense of attorneys fees and disbursements thereby incurred
by landlord, so far as the same are reasonable in amount. Also, so long as
Tenant shall be a tenant hereunder, the amount of such expenses shall be deemed
to be "additional rent" hereunder and shall be due from Tenant to Landlord on
the 1st day of the month following the incurring of such respective expenses.
TWENTY-EIGHTH: COMMON AREAS Landlord and Tenant hereby grant to one
another, its respective heirs, agents, licensees, invitees and assigns, the
right of non-exclusive ingress and egress through the common areas of the
building delineated as
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<PAGE> 19
be maintained free of any and all obstructions, restrictions and the like.
TWENTY-NINTH: JURY WAIVER In the event that Landlord must proceed by
summary proceeding to enforce any provision of the Lease, Tenant and Landlord
hereby waives whatever right he may have to a jury trial with regard to any
issues of law or fact in said proceeding.
THIRTIETH: INVALIDITY The invalidity of unenforceability of any
provisions of this Lease shall in no way affect the validity or enforceability
of any other provision hereof. No failure of Landlord to enforce any term
hereof shall be deemed to be a waiver.
THIRTY-FIRST: SUCCESSION This Lease is binding upon and inures to the
benefit of the heirs, assigns and successors in interest to the parties.
THIRD-SECOND: QUIET ENJOYMENT Landlord shall, at all times during the
term of this Lease, allow Tenant quiet enjoyment of said premises.
THIRTY-THIRD: FINANCING COOPERATION Tenant will use its best efforts
to cooperate with Landlord in satisfying reasonable requirements of Landlord's
mortgagee provided same does not materially alter the terms and conditions of
this Lease.
THIRTY-FOURTH: ARBITRATION Any dispute between Landlord and Tenant
arising out of the provisions of this Lease, excepting the payment of rent,
taxes, mechanic's liens, deposits
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<PAGE> 20
as the parties may agree upon, or if they cannot agree, in accordance with the
rules of the American Arbitration Association.
THIRTY-SEVENTH: OPTION TO RENEW "Provided this Lease has not been
terminated Landlord grants to Tenant an option to renew this Lease for an
additional five year term. Tenant shall notify the Landlord within 120 days of
the expiration of the initial Lease term of its intent to exercise this option.
In the event that the Tenant elects to exercise his option under this paragraph
the total rent shall be subject to negotiation but in no event to exceed the
total rent of the initial lease term increased by the percentage equal to 188 of
the positive increase in the United States Consumer Price Index (All cities 1967
= 100%) from the month of the commencement of the initial lease term to the
fourth month prior to the expiration of the initial lease term. All other terms
and conditions of the Lease will remain the same.
THIRTY-EIGHTH: RIGHT OF FIRST REFUSAL Landlord grants to Tenant the
right of first refusal for additional space which becomes available at 324
Creekside Drive, Amherst, New York, contiguous to Tenant's premises, provided:
Tenant shall notify Landlord of its desire to exercise this right of first
refusal within 20 days of notice of availability by Landlord; the term and rent
of the available space shall be no less favorable than that offered to Landlord
by any other Tenant seeking such space. All other terms and conditions of the
Lease shall remain the same.
THIRTY-NINTH: PARAGRAPH CAPTIONS Paragraph headings set forth herein
are for the convenience of the parties only and the same shall not be deemed to
limit or expand the terms and conditions set forth herein.
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<PAGE> 21
The foregoing constitutes the entire agreement between the parties and
may be modified only by writing, signed by both parties.
UNILAND DEVELOPMENT COMPANY
BY:
------------------------------------
Carl J. Montana
CARBORUMDUM COMPANY
BY: [SIG]
------------------------------------
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<PAGE> 22
On this 11th day of Sept., 1979, before me, the subscriber, personally
appeared CARL J. MONTANTE, partner in the Uniland Development Company, a
general partnership doing business under the laws of the State of New York and
he acknowledged to me that he has executed the within Lease Agreement as such
general partner acting on behalf of such partnership.
/s/ F. LOUISE BURNS
---------------------------------
F. LOUISE BURNS
Notary Public, State of New York
Qualified in Erie County
My Commission Expires March 30, 1981
State of New York)
County of E r i e)
On this________ day of August, 1979, personally appeared _____________
of Carborundum Company, a Corporation, said corporation being named above,
deposes and says that he resides at __________________________ and that he is
the officer of said Carborundum Company, the corporation described in and who
executed the foregoing Lease Agreement; that he knows the seal of said
corporation, that the seal affixed to said instrument is such corporate seal;
that it was fixed by the Order of the Board of Directors of said corporation and
that he signed his name thereto by like order.
---------------------------------
<PAGE> 23
EXHIBIT ?
---------
Tenant shall, on its own stationery, provide to Landlord upon
acceptance or possession of the premises, the following:
"To Whom It May Concern"
Carborundum Company, entered into a Lease Agreement with the Uniland
Development Company for approximately 21,500 square feet of
manufacturing and office space located at 324 Creekside Drive, Amherst,
New York on the ______ day of August, 1979. Landlord tendered and
Tenant accepted possession of premises on this _____ day of August,
1979."
<PAGE> 24
- ------------------------------------------------------------------------------
AUTHORIZATION TO LEASE [COPY ILLEGIBLE] [COPY ILLEGIBLE]
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
[COPY ILLEGIBLE]
The Carborundum Company [COPY ILLEGIBLE]
324 Creekside Drive, Amherst, N.Y. 14150 AMOUNT: $34,608 Increment
- ------------------------------------------------ TERM: FROM 9/1/80 to 11/14/84
[COPY ILLEGIBLE] 4 [COPY ILLEGIBLE] 2.5
Uniland Development Co. [COPY ILLEGIBLE]
260 Wales Ave. [COPY ILLEGIBLE]
Buffalo, New York 14150 [COPY ILLEGIBLE]
- -------------------------------------------------------------------------------------
[COPY ILLEGIBLE]
1935 ft.(2) @ $4.25/ft.(2) This space [COPY ILLEGIBLE]
is within our existing building and [COPY ILLEGIBLE] N.A.
there is direct access to our manufacturing [COPY ILLEGIBLE]
facility. [COPY ILLEGIBLE]
- -------------------------------------------------------------------------------------
[COPY ILLEGIBLE]
Maintenance of building and related heating [ ] [COPY ILLEGIBLE]
air conditioning and lighting. Snow [COPY ILLEGIBLE]
removal and landscaping. [ ] [COPY ILLEGIBLE]
[COPY ILLEGIBLE]
[ ] [COPY ILLEGIBLE]
- -------------------------------------------------------------------------------------
</TABLE>
JUSTIFICATION
The amount of space anticipated to accomplish the expansion and modernization
of Ceramic Fiber Textiles is now inadequate. This is due to the purchase of
additional equipment to meet increased sales.
Presently the Textile operation leases 21,500 ft.(2) of a 40,000 ft.(2)
building. The entire facility is owned by Uniland Development Co. Except for
office space, the rest of the building is occupied by other tenants.
Our requirements dictate a need to set up a Maintenance Dept. and Quality
Control Dept. There is 1935 ft.(2) of available space situated in our
existing facility such that there is direct access to our Manufacturing area.
In order to meet our objectives in cost reductions, it is essential that we
have an organized Maintenance and Quality Control Dept.
The purchase vs. lease of this additional space is not an alternative since
any purchase would involve the entire facility. The other alternative, a
building addition, is also not a viable solution since it would require
extensive planning and financial resources, thus preventing Textiles from
implementing its short term cost saving programs.
------------------------------------------------------------------------------
[COPY ILLEGIBLE] [COPY ILLEGIBLE]
[sig] [sig] [date]
- ------------------------------------------------------------------------------
[COPY ILLEGIBLE]
- ------------------------------------------------------------------------------
DIVISION COMPANY CORPORATE
- ------------------------------------------------------------------------------
DATE DATE [COPY ILLEGIBLE]
---- ----
[sig] [date]
- ------------------------------------------------------------------------------
[sig] [date]
- ------------------------------------------------------------------------------
[COPY ILLEGIBLE] [COPY ILLEGIBLE] [COPY ILLEGIBLE]
[sig] [date]
- ------------------------------------------------------------------------------
[COPY ILLEGIBLE] [COPY ILLEGIBLE]
<PAGE> 25
[COPY ILLEGIBLE]
THIS AMENDMENT OF LEASE dated the _____________________ day
of __________________________ 1980, by and between UNILAND DEVELOPMENT COMPANY,
260 Wales Avenue, Tonawanda, New York 14150, hereinafter called "Landlord", and
THE CARBORUNDUM COMPANY, P.O. Box 808, Niagara Falls, New York, hereinafter
called "Tenant."
WHEREAS, Landlord and Tenant entered into a Lease on or about
the 10th day of September, 1979; and
WHEREAS, Tenant is desirous of expanding the premises covered
under the existing Lease, and
WHEREAS, Landlord shall expand the premises pursuant to
Tenant's request hereinafter referred to as "Expansion Area." Tenant shall
take occupancy of the expansion area upon certification of completion of the
electrical, lighting, and heating and air conditioning and the Lease between
Landlord and Tenant shall be amended as follows:
FIRST: Paragraph "First" -- Occupancy -- shall be amended to
show the total leased premises to be 23[COPY ILLEGIBLE] square feet.
SECOND: Paragraph "Third" -- Rent -- the monthly rent shall be
increased to $5,527.31 for the balance of the lease term except for proration
of rent for the 1st month of occupancy and tenant shall pay the sum of
$5,527.31 on the 1st day of each and every calendar month during said balance
of Lease Term.
THIRD: Completion of Expansion Area -- Landlord shall complete
the expansion area forthwith pursuant to the terms and conditions described in
Schedule B-1 attached hereto and made a part hereof. The expansion area shall
be constructed in a good and workmanlike manner. Landlord warrants that the
<PAGE> 26
expansion area shall be constructed with new materials of good quality in
accordance with all the currently existing ordinances and statutes of the
Municipal or State Governments.
FOURTH: Except as specifically amended herein, the terms of the Lease
between the parties hereto entered into on or about the 10th day of September,
1980, shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have affixed their hands and seals on
the day and year first above mentioned.
UNILAND DEVELOPMENT COMPANY
BY:
---------------------------------
THE CARBORUNDUM COMPANY
BY: /s/ RICHARD C. OLSON
---------------------------------
State of New York ) SS:
County of Erie )
On the day of , 1980, before me, personally came
CARL J. MONTANTE, President of Uniland Development Company which is a
Partnership doing business under the laws of the State of New York, and he
acknowledged to me that he has executed the within Lease Amendment as such
general partner acting on behalf of such partnership.
---------------------------------
State of New York ) SS:
County of Erie )
On the 3rd day of September, 1980, personally appeared RICHARD C. OLSON
of the Carborundum Company, being named above and states that he resides at the
Carborundum Center, Niagara Falls, New York, that he is the officer of said
corporation, the corporation described in and who executed the foregoing Lease
Amendment, he knows the seal of said corporation, that the seal affixed to said
Instrument is such corporate seal and was fixed by the Order of the Board of
Directors of said corporation by like order
/s/ ROBIN A. SANSALONE
---------------------------------------
Robin A. Sansalone
Notary Public, State of New York
Qualified in Erie County
My Commission Expires March 28, 1992
<PAGE> 27
THIRD AMENDMENT TO LEASE
THIRD AMENDMENT TO LEASE dated the 19th day of December 1985 by and
between UNILAND DEVELOPMENT COMPANY, 260 Wales Avenue, Tonawanda, New York
14150, hereinafter called "Landlord" and FIBERS DIVISION OF SOHIO ENGINEERED
MATERIALS COMPANY (an operating company of KENNECOTT CORPORATION, A New York
corporation), P. O. Box 808, Niagara Falls, New York, hereinafter called
"Tenant".
WHEREAS, Landlord and Tenant (formerly THE CARBORUNDUM COMPANY, an
operating company of KENNECOTT CORPORATION) entered into a Lease Agreement on
or about the 10th day of September 1979 which Lease Agreement was amended by
the parties on the 3rd day of September, 1980; and further amended on the 18th
day of September 1984; and
WHEREAS, Landlord has advised Tenant that the space formerly leased
from Landlord by BLUE GIANT EQUIPMENT CORPORATION and more fully delineated as
additional Leased Premises on Schedule A-1, being approximately 6,700 square
feet is presently available for lease by Tenant; and
WHEREAS, Tenant is desirous of increasing its Leased Premises to
include the additional 6,700 square feet, commonly known as the BLUE GIANT
EQUIPMENT space;
NOW, IN CONSIDERATION of the mutual covenants contained herein, the
parties agree as follows:
FIRST: Paragraph "First" - Occupancy - shall be amended commencing
January 1, 1986 to increase the total square footage of the Leased Premises
from 23,435 square feet to 30,135 square feet.
SECOND: Paragraph "Third" - Rent - Commencing January 1, 1986 the
monthly rental shall be increased from SIX THOUSAND SEVEN HUNDRED TWENTY-FIVE
AND 70/100 DOLLARS ($6,725.70) per month to EIGHT THOUSAND SIX HUNDRED
TWENTY-NINE AND 70/100 DOLLARS ($8,629.70) per month.
<PAGE> 28
THIRD: Paragraph "Twelfth" - Additional Rent - Commencing January 1,
1986 the parties agree that Tenant occupies eighty-two percent (82%) of the
entire building in which the Leased Premises is located.
FOURTH: In the event that Tenant is not in default of any of the terms
and conditions of this Lease Agreement, Landlord grants to Tenant the right of
first refusal at a Lease price to be negotiated by the parties on the adjacent
space presently occupied by RUNCO PHOTO, INC. In the event that the "RUNCO"
space becomes available, Tenant shall have thirty (30) days, following written
notice from Landlord of its availability, to advise Landlord in writing whether
it desires to lease the "RUNCO" space at the mutually agreeable Lease price.
FIFTH: All other terms and conditions of the initial Lease as amended
by Lease Amendments numbered First and Second shall remain in full force and
effect except as modified herein.
IN WITNESS WHEREOF, the parties have affixed their hands and seals on
the day first above mentioned.
UNILAND DEVELOPMENT COMPANY
BY: /s/ SIG
------------------------------
FIBERS DIVISION OF SOHIO
ENGINEERED MATERIALS COMPANY
BY: /s/ SIG
------------------------------
Manager, Manufacturing
-2-
<PAGE> 29
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 19th day of December 1985, before me, the subscriber,
personally appeared CARL J. MONTANTE, Partner in the UNILAND DEVELOPMENT
COMPANY, a General Partnership, doing business under the laws of the State of
New York, and he acknowledged to me that he has executed the within Third
Amendment to Lease as such General Partner acting on behalf of such Partnership.
/s/ F. LOUISE BURNS
--------------------------------
F. LOUISE BURNS
Notary Public, State of New York
Qualified in Erie County
My Commission Expires March 30, 1987
<PAGE> 30
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 11th day of February 1987, by
and between UNILAND DEVELOPMENT COMPANY, a New York general partnership, 260
Wales Avenue, Tonawanda, New York 14150, hereinafter called "Landlord", and
FIBERS DIVISION OF STANDARD OIL ENGINEERED MATERIALS COMPANY, an operating
company of STEMCOR Corporation, a Delaware Corporation, (successor in interest
to Kennecott Corporation) hereinafter called "Tenant".
FIRST: LEASED PREMISES. Landlord leases to Tenant and
Tenant hereby takes land, office and light manufacturing space comprising
approximately 33,285 square feet in a building located at Audubon Industrial
Park, 310 Creekside Drive, Amherst, New York 14150, more specifically
designated on a plan attached hereto and designated as Schedule "A" and made a
part hereof.
SECOND: TERM. The term hereof shall commence on the first
(1st) day of April 1987 and continue for a period of six (6) years and nine
(9) months terminating at midnight on December 31, 1993.
THIRD: RENT. The total rent shall consist of an existing
obligation under the various Lease Agreements between the parties of TWO HUNDRED
NINETY THREE THOUSAND FOUR HUNDRED NINE AND 80/100 DOLLARS ($293,409.80) and new
rent of FIVE HUNDRED SIXTY ONE THOUSAND THREE HUNDRED NINETY EIGHT AND 70/100
DOLLARS ($561,398.70) for a total of EIGHT HUNDRED FIFTY FOUR THOUSAND EIGHT
HUNDRED EIGHT AND 10/100 ($854,808.10) payable as follows:
<PAGE> 31
A. On or before the signing of the Lease as the first (1st)
month's rent, the sum of NINE THOUSAND SIX HUNDRED SIXTY-SIX AND 70/100 DOLLARS
($9,666.70) and on the first (1st) day of the second (2nd) month of the tenancy
and on the first (1st) day of each and every calendar month thereafter through
the thirty-second (32nd) month of Tenancy, Tenant shall pay to Landlord the sum
of NINE THOUSAND SIX HUNDRED SIXTY-SIX AND 70/100 DOLLARS ($9,666.70);
B. On the first (1st) day of the thirty-third (33rd) month
through the eighty-first (81st) month of tenancy, Tenant shall pay to Landlord
the sum of TEN THOUSAND NINE HUNDRED FIFTY-SIX DOLLARS ($10,956.00).
Tenant shall be liable for and Landlord may collect a late
charge of up to five percent (5%) as additional rent on any installment of rent
or other sums due hereunder in the event Tenant shall fail to pay same within
ten (10) days after the date such installment becomes due hereunder. Such
charge shall be in addition to and not in lieu of any other remedy of Landlord
hereunder. All rents shall be paid to Landlord or authorized agent at 260
Wales Avenue, Tonawanda, New York 14150, or at such other places as may be
designated by Landlord from time to time.
FOURTH: LANDLORD IMPROVEMENTS. Tenant shall accept the
Leased Premises "as-is" except that prior to Tenant's occupancy on the first
(1st) day of April 1987, Landlord shall make certain improvements as delineated
in Schedule "B". Notwithstanding the above, Tenant shall only be obligated to
accept and occupy the Leased Premises when the Schedule "B" improvements have
been completed, and no rent shall be due for such incomplete space until
completion.
FIFTH: USE. The Leased Premises shall be used and
<PAGE> 32
noise and/or other nuisance beyond the confines of leased Premises and said use
does not result in deterioration of Leased Premises or building in which Leased
Premises is located. Tenant will not permit the accumulation of waste or
refuse matter on or in the vicinity of the Leased Premises or the building in
which said Leased Premises is located; Tenant will not obstruct or permit the
obstruction of streets, or sidewalks adjacent thereto.
SIXTH: SUBLETTING. Provided Tenant remains financially and
legally responsible for all the terms and conditions of this Lease, Tenant may
assign or sublet the Lease with Landlord's prior written consent which consent
shall not be unreasonably withheld. Notwithstanding the above, prior to Tenant
offering Leased Premises for sublease, Tenant shall give Landlord written
notice of its desire to sublet the Lease Premises. Landlord shall have thirty
(30) days from the receipt of said notice to notify Tenant of its desire to
terminate the Lease and take possession of the Leased Premises as of the date
the sublease would have commenced, but in no event later than ninety (90) days
from the date of Tenant's notice to Landlord.
SEVENTH: MAINTENANCE. Subject to Paragraph "NINTH"
responsibility of the respective parties for maintenance and repairs to the
premises shall be determined as follows:
A) Landlord shall, except for Tenant's negligence,
maintain and repair the structural portion of the Leased Premises including:
roof, exterior walls (excluding window glass), foundation, floor slab
(excluding floor finishing such as tile, carpeting and the like).
B) Landlord shall, maintain and repair the exterior
portion of the Leased Premises, including the parKing area, curbs, sidewalks.
?? [ILLEGIBLE COPY]
<PAGE> 33
C) Tenant shall, for the term of the Lease and a
subsequent renewal thereof, maintain and repair, when necessary, all mechanical
systems operating in the Leased Premises. Such maintenance and repair shall
include but not be limited to routine, scheduled, and periodic maintenance and
cleaning and the recommended replacement of all filters. Tenant shall also be
responsible for the replacement of all incandescent and fluorescent light bulbs
on an as needed basis which are located within the Leased Premises.
D) Tenant shall, throughout the term of the Lease or any
renewal thereof, maintain and repair the remaining portion of the Leased
Premises, including, but not limited to, interior walls and wall finishings;
carpeting and other floor finishings; ceiling, tile; lavatories and fixtures
therein, and the like, and shall surrender same in as good a condition as
received, normal wear and tear excepted, and all other items not specifically
the responsibility of Landlord.
E) Tenant shall maintain utility services to the Leased
Premises, (heat, electricity and the like) in sufficient amount to prevent
damage to the Leased Premises or deterioration thereof.
All maintenance, repairs and alterations made by the Tenant
shall be done immediately as needed and in a good and workmanlike manner.
Tenant shall comply with federal, state and local governments' laws, rules,
orders and ordinances, and regulations at any time issued or enforced,
applicable to the Leased Premises. Tenant shall not make any structural
alteration to the Leased Premises without prior written consent of Landlord,
which consent shall not be unreasonably withheld.
EIGHTH: UTILITIES. Tenant agrees that it shall be
responsible for the payment of all utilities, including water,
<PAGE> 34
on a prorated basis. Landlord shall not be responsible for failure of, or lack
of water, gas, electricity, or other fuel, except for Landlord's negligence or
Landlord's failure to perform the covenants of this Lease on its part to be
performed.
NINTH: ADDITIONAL RENT. As additional rent hereunder,
Tenant shall pay to Landlord its proportionate share of the following, defined
as follows: if Tenant occupies the entire building, its proportionate share
shall be one hundred (100%) percent; if Tenant does not occupy the entire
building, Tenant's floor space in relation to the floor space of the entire
building shall be the factor in determining the proportionate share of
increases to be borne by Tenant for the purposes of such computation. The
parties do now agree that Tenant shall occupy ninety percent (90%) of the
entire building.
(1) Tenant's proportionate share of increases over the
base year in Fire and Extended Coverage Insurance premiums; and Landlord's
Public Liability Insurance premiums; however, an increase in premiums
attributable solely to Tenant's use of Leased Premises shall be paid completely
by Tenant, and any increase in premiums resulting from a use by Tenant (other
than Tenant herein) of the building in which the Leased Premises are located,
which use is deemed extra-hazardous by the insurance carrier, shall first be
pro-rated out of the insurance premium. Landlord shall, at the request of the
Tenant, provide an explanation of any premium increase hereunder. Landlord, at
its expense shall maintain insurance against Fire and such hazards as are
included from tine to time within the so-called extended Coverage endorsement
in amounts sufficient to prevent application of co-insurance clauses.
<PAGE> 35
(2) Tenant's proportionate share of all state, municipal
and local taxes (except gift, estate, inheritance, succession, and income
taxes, if any, on the interest of the Landlord) assessments, levies, and other
charges general and special ordinary and extraordinary, in whatever name,
nature and kind, (except as specified above) that are or may be during the term
hereof, or any renewal, (beginning with the commencement of the term hereof)
levied, assessed, imposed or charged on the Leased Premises and all of which
may be levied, assessed, imposed, or charged on or against the leasehold estate
hereby created during the term hereof. The taxes, assessments, levies and
other charges, shall be paid in the name of the Landlord, and Landlord shall
pay the same as specified above whether such taxes or charges become due and
payable during the term hereof or any renewal, or subsequent to the expiration
or sooner termination hereof, however, Tenant shall be liable for taxes
pro-rated only until the date of termination of this Lease. If, at any time
during the term of this Lease, the present method of taxation or assessment
shall be changed so that the whole or any part of the taxes, assessments,
levies or charges now levied, assessed and imposed on the real estate hereby
demised and improvements thereon, shall be transferred to the rentals received
from such real property in whole or in part, or against such rentals in whole
or in part, and if partly on such real estate and partly on such rentals,
Tenant shall pay such proportionate share of taxes and assessments levied and
assessed on such rentals as shall proportionately relieve the taxes and
assessments on such real estate, it being the intention of the parties hereto
that Landlord shall receive the rents reserved herein without deduction of
taxes (except gift, estate, inheritance, succession,
<PAGE> 36
and income taxes on the interest of the Landlord), assessments, levies, or
charges in respect to the real estate and improvements and also on such
rentals. Tenant shall have the right, at its own expense, to contest any taxes
or assessments in the name of Landlord and Landlord shall cooperate in any
proceedings arising out of Tenant's exercise of this right.
(3) The Landlord's cost of maintaining the non-
structural exterior portions of the building including, but not limited to
exterior maintenance expenses including snow removal, landscaping and grounds
maintenance, driveway, access road and parking lot sealing and striping,
external lighting and the like as described in Paragraph "SEVENTH (B)".
(4) Landlord's cost of maintaining and repairing all
common areas within the building as such common areas are delineated in
Schedule "A" and "B".
(5) Utility expense for electrical service to the common
areas and external portions of the building for external lighting, deep-dock
pumps and other exterior use; water and sprinkler service expense of the
building wherein the Leased Premises is located.
(6) All additional rent due and owing under this
Paragraph "NINTH" shall be paid by Tenant to Landlord within forty-five (45)
days following the date of the billing by Landlord for same. Landlord shall
bill Tenant monthly for additional rent expenses.
(7) The base year for purposes of this paragraph "NINTH"
shall be defined as the first twelve (12) months of the Lease Term.
<PAGE> 37
TENTH: LIABILITY INSURANCE. Tenant, at its expense shall
maintain the following:
LIABILITY: Liability and property damage insurance, TWO
MILLION DOLLARS ($2,000,000.00) per person and TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000.00) per event for personal injury; ONE MILLION
DOLLARS ($1,000,000.00) property damage. Tenant shall provide Landlord with a
certificate of insurance showing Landlord as additional insured. The
certificate shall provide for a ten (10) day written notice to Landlord in the
event of cancellation or material change of coverage. This insurance may be
provided as part of blanket coverage by Tenant.
ELEVENTH: LIABILITY. Landlord shall not be liable for,
and Tenant agrees to hold Landlord harmless from any claims for damage or
injury to Tenant or any other person, or to any property, occurring on the
Leased Premises, or any part thereof, unless such liability shall accrue as a
result of Landlord's negligence or Landlord's failure to perform the covenants
of this Lease on its part to be performed.
Landlord and Tenant hereby release one another from all
liability for any loss or damage caused by fire or any other risks enumerated
in standard insurance and extended coverage insurance. This release is
conditioned upon the inclusion in the respective policies of insurance an
endorsement or provision stating that such release will not adversely affect
said policies or prejudice any right of the insured to recover thereunder.
Landlord and Tenant agree that their respective insurance policies will include
the aforesaid provision or endorsement so long as the same is obtainable
without extra cost, or if extra
<PAGE> 38
costs should be charged, so long as the party for whose benefit the clause is
obtained shall pay for such extra costs. If extra costs shall be chargeable
therefor, the party so affected shall advise the other of the amount of extra
costs and the other party, at its election, may pay the same or decline to so
pay, in which event the release from liability given to said party by this
section shall be deemed to be withdrawn.
TWELFTH: COMPLIANCE WITH LAWS. From and after entering into
possession, subject to Landlord's duties and obligations to repair as contained
in Paragraph "SEVENTH", Tenant shall comply with all statutes, ordinances, and
requirements of all municipal, State and Federal authorities now in force, or
which may hereafter be in force, pertaining to the Leased Premises, occasioned
by the use of the Leased Premises by Tenant. The notice of a violation by
Landlord or any governmental or quasi-governmental agency to Tenant or the
commencement or pendency of any municipal, State or Federal proceedings alleging
a violation which would affect the use of the Leased Premises shall, at the
option of the Landlord, and subject to the notice provisions of Paragraph
"ELEVENTH" be deemed a breach hereof, providing, however, the notice of such
violation or the commencement of such proceedings shall not be a breach hereof,
if:
A) Tenant diligently takes action to comply with such
statute, ordinance or other requirements, or
B) Tenant, in good faith, contests such proceeding to a
final determination and thereafter complies with such order as may issue. (In
any such contest, Tenant will take such action(s), including deposit of
security, as may be reasonably necessary to prevent a forfeiture of Landlord's
<PAGE> 39
title.) Notwithstanding this Paragraph "TWELFTH", if after Tenant has been
found to be in violation of any statute, ordinance or requirement of any
municipal, State or Federal authority now in force, or hereinafter in force,
pertaining to Tenant's use of the Leased Premises, and fails to immediately
correct the same, Landlord shall have the right to take whatever action
necessary to place Leased Premises in compliance with any statute, ordinance
and requirement of all municipal, State and Federal authorities now in force or
which hereinafter may be in force and to charge Tenant the costs thereof as
additional rent for this action
THIRTEENTH: LANDLORD'S ACCESS. Tenant shall permit
Landlord, or Landlord's agent, at reasonable times and upon reasonable notice,
to enter upon the Leased Premises for the purpose of inspecting the same, and
will permit Landlord at any time within one hundred twenty (120) days prior to
the expiration of Lease, to place upon the Leased Premises any usual "To Let"
or "For Lease" signs, and at reasonable times and upon reasonable notice permit
persons desiring to lease the same to inspect the Leased Premises thereafter.
Landlord shall, at the time permitted by this Lease, have the right to enter
Leased Premises for the purpose of making repairs, or structural changes to
said Leased Premises or building commonly known as 310 Creekside Drive at
Audubon Industrial Park, Amherst, New York. Any such repairs or structural
changes will be made with reasonable dispatch and in a manner to interfere as
little as possible with Tenant's use and enjoyment of the Leased Premises.
FOURTEENTH: CONDEMNATION.
(A) In the event that an area of 25% or more of the
<PAGE> 40
Leased Premises shall be taken in any proceeding by the public authorities, by
condemnation or by deed in or be acquired for public or quasi-public purposes,
the Tenant shall have the option of terminating this Lease, in which case any
unearned rent shall be refunded to the Tenant. The said option to terminate
shall be exercisable by written notice given by the Tenant to the Landlord not
later than sixty (60) days following notice to the Tenant by Landlord of such
condemnation of acquisition. In the event that less than 25% of the area of
the building or more, providing same does not materially affect Tenant's
ability to conduct its intended business or if Tenant does not elect to
terminate this Lease, then the Landlord shall restore the Leased Premises to
the end that the Leased Premises shall be restored so far as practicable to the
condition existing immediately prior to such taking, and the rent and
additional rent shall be reduced in the same proportion that the amount of
floor area in the building is reduced by such condemnation or other
proceedings, or by such acquisition.
(B) In the event of a condemnation of more than eighty
percent (80%) of the building in which the Leased Premises is located, or in
the event of any termination of this Lease by virtue of condemnation as
provided in Paragraph (A) of this Paragraph "FOURTEENTH" this Lease shall
terminate and the Tenant shall not be entitled to any part of the award or
awards made, provided, however, that Tenant may make a claim for loss of
Tenant's fixtures, loss of business and relocation expenses.
(C) Anything contained in Subparagraphs (A) and (B) of
this Paragraph "FOURTEENTH" to the contrary notwithstanding, the Landlord shall
not be required to repair or rebuild the Leased Premises during the last year
of the original term or the last year of any renewal term thereof.
<PAGE> 41
FIFTEENTH: IMPROVEMENTS. Title to any and all
improvements by Tenant made to premises during the term hereof shall vest in
Landlord (except trade fixtures of the Tenant), as of the end of the term of
this Lease or any earlier termination. Tenant may, upon termination hereof,
remove all its trade fixtures, but shall repair or pay for all repairs
necessary for damages to the Leased Premises occasioned by removal,
SIXTEENTH: DESTRUCTION. In the event of a partial
destruction of the Leased Premises, from any cause, the tenancy shall continue
with rent proportionately abated. Landlord shall forthwith repair the same,
provided that such repairs can be made within sixty (60) days from the partial
destruction of Leased Premises under existing governmental laws and regulation,
but such partial destruction shall not terminate this Lease. Tenant shall be
entitled to a proportionate reduction of rent while such repairs are being
made. If such repairs cannot be made within said sixty (60) days, Landlord
shall within the first twenty-five (25) days after partial destruction of
Leased Premises, notify Tenant that repairs cannot be completed within sixty
(60) days, and within five (5) days after such notification, Tenant shall, at
its option, notify Landlord of its intent to remain upon Leased Premises or
cancel this Lease, and if Tenant remains, Landlord shall have ninety (90) days
from that date to complete repair, rent to be proportionately reduced as
aforesaid. Repairs which cannot be completed within ninety (90) days shall be
done only with the election of both Landlord and Tenant. If such partial
damage is done due to the fault or negligence of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired by
Landlord, but there will be no apportionment of rent. In the event that the
building in which the Leased Premises may be situated is destroyed to an extent
more than one half [ILLEGIBLE COPY]
<PAGE> 42
terminate this Lease. Notwithstanding the above, Landlord shall have no
obligation to repair Leased Premises at any time within the last year of the
Lease or the last year of any extension or renewal thereof.
SEVENTEENTH: CONTINUOUS OCCUPANCY. Tenant shall not be
able to vacate or abandon the Leased Premises at any time during the term
hereof except upon thirty (30) days notice to Landlord. In the event that a
receiver shall be appointed to take over the business of Tenant, or in the
event that Tenant shall make a general assignment for the benefit of creditors,
or Tenant shall take or suffer any action under any insolvency or bankruptcy
act, provided in the case of an involuntary bankruptcy, such action shall not
be vacated within sixty (60) consecutive days and from the filing of such an
insolvency or bankruptcy action, the same shall constitute a breach of this
Lease by Tenant.
EIGHTEENTH: RIGHT TO PERFORM. If a notice of mechanic's
lien be filed against the Leased Premises for, or purporting to be for, labor or
material alleged to have been furnished, or to be furnished to, or for any party
hereto, at the Leased Premises, and if such party shall fail to take such action
as shall cause such lien to be removed from the record by discharge, deposit or
bonding proceedings, within fifteen (15) days after such party received notice
of the filing of such lien, any other party may pay the amount of such lien or
discharge the same by deposit or by bonding proceedings, and in the event of
such deposit or bonding proceedings, such other party may require the lienor to
prosecute an appropriate action to enforce the lienor's claim. (In such case,
any party may pay any judgment recovered on such claim.) Any amount paid or
expense incurred by Landlord or Tenant as in this Paragraph of [ILLEGIBLE COPY]
<PAGE> 43
any time be in default for, or in respect to, the use of water, electric
current, natural gas or sprinkler supervisory service provided, the same are
liens against Leased Premises shall be added to, or deducted from, succeeding
rental payments as may be appropriate.
NINETEENTH: TENANT DEFAULT AND RIGHT OF RE-ENTRY. In the
event of any breach of this Lease by Tenant, Landlord, besides other rights and
remedies he may have, shall have the immediate right of re-entry and may remove
all persons and property from the Leased Premises. Such property may be moved
and stored in a public warehouse or elsewhere at the cost of, and for the
account of, Tenant. Should Landlord elect to re-enter, or should he take
possession pursuant to legal proceedings or any notice provided by law, he may
either terminate this Lease, or may, from time to time, without terminating the
Lease, relet said Leased Premises, or any part thereof, for which term or terms
(which may be for a term extending beyond the term of this Lease) and at such
rental or rentals and upon such terms and conditions as Landlord, in its sole
discretion, may deem advisable, with the right to alter or repair the Leased
Premises upon re-letting. In such event, Tenant shall be immediately liable to
pay to Landlord, in addition to any other amounts due hereunder at the option
of Landlord either:
(A) the cost and expense of such reletting and such
alterations and/or repairs, and any amount which the rent reserved herein for
the period of such reletting, but not beyond the term hereof, exceeds the
amount agreed to be paid as rent for such period, or;
(B) rents received by Landlord from such reletting shall
be applied, first to the repayment of indebtedness other than rent due
hereunder, second to cost and expenses of reletting and alterations or repairs,
and third to the payment or rent due
<PAGE> 44
Landlord and applied in payment of future rent as the same may become due and
payable. Tenant shall be credited only with rent actually received by Landlord.
Tenant shall, in such event, pay any deficiency between the amount due from
Tenant to Landlord and the amount credited. No such re-entry or taking
possession by Landlord shall be construed as an election to terminate this Lease
unless written notice of such intention is given or unless termination be
declared by a Court of competent jurisdiction. Notwithstanding any such
re-letting without termination, Landlord may at any time thereafter elect to
terminate this Lease on account of such previous breach. Should Landlord at any
time terminate this Lease for any breach, in addition to any other remedy it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, and including the worth at the time of such termination of the excess,
if any, of the amount of said rent and charges equivalent to the rent reserved
for over the then reasonable value of the Leased Premises for the remainder of
the term.
Notwithstanding this Paragraph "NINETEENTH", and as a
condition precedent to the exercise of any remedy under this Lease by Landlord.
(A) Landlord shall give Tenant notice in writing of
Tenant's failure to pay rent and/or real estate taxes and other, if any
obligations satisfied by payment of money, and if Tenant shall pay the same
within ten (10) days of receipt of said notice, Tenant shall not be in default
or breach of this Lease;
(B) Landlord shall give Tenant notice in writing of any
other default or breach which cannot be corrected by the payment of money, and
if Tenant shall correct the same within twenty (20) days of receipt of said
notice, Tenant shall not be in default or breach hereunder, provided, however,
if the breach or default is such that it may not be corrected within
<PAGE> 45
said twenty (20) day period, but Tenant commences to correct the same within
said period and diligently continues to correct same, Tenant shall not be in
default or breach hereof.
TWENTIETH: LANDLORD'S NOTICE. In any breach of the
Lease by Landlord, Tenant shall be bound by the same notice requirements as the
Landlord in Paragraph "NINETEENTH".
TWENTY-FIRST: ACCESS ROAD. Landlord grants to Tenant the
right of non-exclusive ingress and egress along the private road delineated as
Area "C" in Schedule "A". Such road shall be for the use and enjoyment of
ingress and egress and installation of utilities and services by owners, lawful
occupants and tenants of Landlord, and Tenant shall not obstruct such access
road. Landlord grants to Tenant the right of non-exclusive ingress and egress
through Area "B" (parking areas) delineated in Schedule "A". The right of
non-exclusive ingress and egress shall be for the use and enjoyment for ingress
and egress and installation of utilities and services by owners, lawful
occupants and tenants of Landlord, and Landlord shall not obstruct such Area
"B". Providing Tenant is not in default of the terms and conditions of this
Lease, and a mortgagee shall foreclose on any mortgage affecting the Leased
Premises, access road, or any premises enjoying the use of said road, the use
and enjoyment of the right of way for ingress and egress shall not be disturbed
by said action to foreclose said mortgage.
Tenant shall execute any document required by Landlord to
enforce the terms and conditions of this paragraph provided said does not
diminish Tenant's rights hereunder.
TWENTY-SECOND: SUBORDINATION. This Lease shall be subject
and subordinate at all times to the lien of the mortgages now on the Leased
Premises and all [ILLEGIBLE COPY]
<PAGE> 46
subordinate to the lien of any future mortgage or mortgages including purchase
money mortgages, which may be a lien upon the Leased Premises, provided,
however, that any such mortgage or mortgages shall provide that in any
foreclosure proceedings, Tenant will not be made a party thereunder and in any
sale in such foreclosure proceeding, this Lease shall remain undisturbed and in
full force and effect provided Tenant is not in default hereunder.
TWENTY-THIRD: METHOD OF NOTICE. Any notice or demand which,
under the terms of this Lease or under any statute, must or may be given or
made by the parties hereto shall be in writing and shall be given or made by
mailing the same by certified or registered mail addressed to the respective
parties at the following addresses:
In the case of Tenant, to: With a copy to:
FIBERS DIVISION OF STANDARD STANDARD OIL ENGINEERED
OIL ENGINEERED MATERIALS MATERIALS COMPANY, FIBERS
COMPANY DIVISION
ATTENTION: PLANT MANAGER P.O. BOX 808
310 Creekside Drive Niagara Falls, New York 14302
Audubon Industrial Park ATTENTION: Controller
Amherst, New York 14150
In the case of Landlord to: With a copy to:
UNILAND DEVELOPMENT COMPANY ARTHUR F. DOBSON, JR., ESQ.
260 Wales Avenue PARRINO COOPER BUTLER & DOBSON
Tonawanda, New York 14150 135 Delaware Avenue Suite 405
Buffalo, New York 14202
or such other address as each of the parties hereto may from time to time
designate by notice to the other.
<PAGE> 47
TWENTY-FOURTH: ATTORNEY EXPENSES. If either party shall at
any time be in default hereunder, and if either party shall institute an action
or summary proceeding against the offending party based upon such default, then
the losing party will reimburse the prevailing party for the expense of
attorney's fees and disbursements thereby incurred by the prevailing party, so
far as the same are reasonable in amount. Also, so long as Tenant shall be a
tenant hereunder, the amount of such expenses shall be deemed to be "additional
rent" hereunder and shall be due from Tenant to Landlord on the first day of
the month following the incurring of such respective expenses.
TWENTY-FIFTH: COMMON AREAS. Landlord and Tenant hereby
grant to one another, its respective heirs, agents, licensees, invitees and
assigns, the right of non-exclusive ingress and egress through the common areas
of the building delineated as "common area" in Schedule "B" attached hereto.
The common areas shall be maintained free of any and ali obstructions,
restrictions and the like.
TWENTY-SIXTH: TELEPHONE SERVICE. Telephone service to and
throughout the Leased Premises shall be the responsibility of the Tenant.
Notwithstanding provisions of Paragraph "SEVENTH", maintenance of telephone
wiring and equipment shall be the responsibility of the Tenant for the term of
the Lease. Installation of wiring and equipment shall comply with all local
ordinances and regulations of the New York State Fire Underwriters .
TWENTY-SEVENTH: JURY WAIVER. In the event that Landlord must
proceed by summary proceedings to enforce any provision of the Lease, Tenant
and Landlord hereby waive whatever right they may have to a jury trial with
regard to any issues of law or fact in said proceeding.
<PAGE> 48
TWENTY-EIGHTH: INVALIDITY. The invalidity or
unenforceability or any provisions of this Lease shall in no way affect the
validity of enforceability of any other provision hereof. No failure of
Landlord to enforce any term hereof shall be deemed to be a waiver.
TWENTY-NINTH: SUCCESSION. This Lease is binding upon and
inures to the benefit of the heirs, assigns and successors in interest to the
parties.
THIRTIETH: RULES AND REGULATIONS. Tenant agrees to
comply with all reasonable rules and regulations which the Landlord may
establish from time to time for the protection and welfare of the Tenant, the
building, and all other tenants and occupants thereof.
THIRTY-FIRST: QUIET ENJOYMENT. Landlord shall, at all
times during the term of this Lease, allow Tenant quiet enjoyment of said
Leased Premises.
THIRTY-SECOND: FINANCING COOPERATION. Tenant will use its
best efforts to cooperate with Landlord in satisfying reasonable requirements
of Landlord's mortgagee, provided same does not materially alter the terms and
conditions of this Lease, including attached Estoppel certificate.
THIRTY-THIRD: ARBITRATION. Any dispute between Landlord
and Tenant arising out of the provisions of this Lease, excepting the payment
of rent, taxes, mechanic's liens, deposits and the like shall be submitted to
arbitration in such a manner as the parties may agree upon, or if they cannot
agree, in accordance with the rules of the American Arbitration Association.
<PAGE> 49
THIRTY-FOURTH: SIGNAGE. Landlord reserves the right to
maintain uniformity and conformity for all exterior signs including window
signage of all tenants of the building and/or complex in which the Leased
Premises is located. Landlord, at Tenant's request, shall provide Tenant with
specifications for its signage and Tenant may, at its own expense, construct or
install a sign in accordance with the aforesaid specifications. All requests
for permission to erect, apply and/or install signage must be made in writing
to the Landlord and include a graphic illustration of the proposed sign.
Landlord shall respond within fifteen (15) days to Tenant's request with either
approval or disapproval of the proposed signage.
THIRTY-FIFTH: PARKING. Landlord shall provide car parks for
Tenant within the confines of the Building parking lot as described in Schedule
"A". Landlord reserves the right throughout the term of this Lease to assign
Tenant specific on site car parks.
THIRTY-SIXTH: ESTOPPEL AGREEMENT. Tenant shall, from time
to time, when requested in writing by Landlord or Landlord's mortgagee, execute
a reasonable estoppel agreement describing among other items: the remaining
length of the Lease term, acknowledging possession of the Leased Premises, the
annual rent and method of payment, whether Tenant has any set offs against
Landlord, whether either Landlord or Tenant is in default of the Lease
Agreement, and the like including the Estoppel Certificate as per Schedule D.
THIRTY-SEVENTH: OPTION TO RENEW. Provided this Lease has not
been terminated, Landlord grants to Tenant an option to renew this lease for an
additional five (5) year term. Tenant shall notify the Landlord one hundred
twenty (120) days prior to [ILLEGIBLE COPY]
<PAGE> 50
exercise its option under this Paragraph "THIRTY-SEVENTH", and the rent shall
be the fair market value of the Leased Premises at the time of the exercise of
this option. Landlord shall notify Tenant in writing the amount of rent to be
paid during the renewal term at least one hundred eighty (180) days prior to
the expiration of the initial Lease Term.
THIRTY-EIGHTH: RIGHT OF FIRST REFUSAL. In the event the
Tenant is not in default of any of the terms and conditions of the Lease or any
subsequent renewal thereof, Landlord grants to Tenant the right of first
refusal to Lease from Landlord any space which becomes available on the second
floor of the Building located at 310 Creekside Drive, Audubon Industrial Park,
Amherst, New York 14150. Tenant shall have ten (10) days from Landlord's
written notice to Tenant of the availability of the adjacent space to exercise
its right of first refusal on same. In the event Tenant exercises its right of
first refusal, the Lease Term for the Leased Premises and the additional space
terminate contemporaneously. The Lease Term of both the Leased Premises and
the additional term shall be a minimum of three (3) years or the length of time
left on the tenancy covering the Leased Premises, whichever is longer. If the
Lease Term for the Leased Premises is less than three (3) years at the time of
Tenant exercising its right of first refusal, then Tenant's lease for the
Leased Premises shall be automatically extended to a three (3) year term. The
rent for the additional term covering the Leased Premises shall be the fair
market value of the Leased Premises at the time of the exercise of this right
of first refusal and in such event, Landlord shall provide in its notice of the
right of first refusal the revised rent covering the additional term. Nothing
in this Paragraph "THIRTY-EIGHTH" shall require landlord to subdivide the
available space offered to Tenant without Landlord's consent.
<PAGE> 51
THIRTY-NINTH: LEASE CONSOLIDATION. Tenant and Landlord
presently have a Lease Agreement dated as of September 10, 1979 as amended by
Amendments dated September 10, 1980; September 18, 1984; and December 19, 1985
for eighty-two percent (82%) of the building on Leased Premises under this
Lease. Upon the Leased Premises being ready for occupancy pursuant to this
Lease Agreement, and Tenant's acceptance of same, the Lease dated September
10, 1979 as amended on September 10, 1980; September 18, 1984; and December 19,
1985 shall be consolidated as contained herein. It being the intention of the
parties that this Lease shall control Landlord and Tenant's relationship
concerning the Leased Premises. With this Lease, Tenant is leasing an
additional eight percent (8%) of the building in which the Leased Premises is
located.
FORTIETH: PARAGRAPH CAPTIONS. Paragraph headings set
forth herein are for the convenience of the parties only and the same shall not
be deemed to limit or expand the terms and conditions set forth herein.
IN WITNESS WHEREOF, the parties hereto have affixed their
hands and seals the day and year first above-mentioned.
UNILAND DEVELOPMENT COMPANY
By: /s/ NANCY R. DOBSON
----------------------------
FIBERS DIVISION OF STANDARD OIL
ENGINEERED MATERIALS COMPANY an
operating company of STEMCOR
Corporation
<PAGE> 52
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 11th day of February, 1987, before me, the subscriber,
personally appeared NANCY R. DOBSON, Executive Vice President of the UNILAND
DEVELOPMENT COMPANY, a General Partnership doing business under the laws of the
State of New York, and she acknowledged to me that she has executed the within
Lease Agreement as such Executive Vice President acting on behalf of such
partnership.
/s/ F. LOUISE BURNS
--------------------------------
F. LOUISE BURNS
Notary Public, State of New York
Qualified in Erie County
My Commission Expires March 30, 1987
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 11th day of February, 1987, personally appeared [NAME],
of FIBERS DIVISION OF STANDARD OIL ENGINEERED MATERIALS COMPANY, a division of
STEMCOR Corporation, said corporation being named above, deposes and says that
he resides at____________________________________________ and that he is an
officer of said corporation, the corporation described in and who executed the
foregoing Lease Agreement; that he knows the seal of said Corporation, that the
seal affixed to said Instrument is such Corporate seal; that it was affixed by
the Order of the Board of Directors of said Corporation and that he signed his
name thereto by like order.
/s/ F. LOUISE BURNS
----------------------------------
F. LOUISE BURNS
Notary Public, State of New York
Qualified in Erie County
My Commission Expires March 30, 1987
<PAGE> 53
FIRST AMENDMENT TO LEASE
BY AND BETWEEN
UNILAND DEVELOPMENT COMPANY
AND
FIBERS DIVISION OF THE CARBORUNDUM CO.
DATED: December 24, 1993
Lease No. 408-F
<PAGE> 54
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE ("First Amendment") dated the 24th day of
December, 1993, by and between UNILAND DEVELOPMENT COMPANY, a New York General
Partnership, University Corporate Centre, 100 Corporate Parkway, Suite 500,
Amherst, New York 14226, hereinafter called "Landlord", and FIBERS DIVISION OF
THE CARBORUNDUM CO., a Delaware Corporation, 310 Creekside Drive, Amherst, New
York 14228, hereinafter called "Tenant."
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated the
11th day of February, 1987, ("Lease Agreement") for THIRTY THREE THOUSAND TWO
HUNDRED EIGHTY FIVE (33,285) square feet of office and warehouse space located
at 310 Creekside Drive, Amherst, New York as more particularly described in the
Lease Agreement ("Leased Premises"); and
WHEREAS, Landlord and Tenant are desirous of expanding the Leased
Premises by EIGHT THOUSAND SEVEN HUNDRED FIFTY (8,750) square feet ("Additional
Leased Premises") from THIRTY THREE THOUSAND TWO HUNDRED EIGHTY FIVE (33,285)
square feet to FORTY TWO THOUSAND THIRTY FIVE (42,035) square feet; and
WHEREAS, Landlord and Tenant are desirous of extending the term of the
Lease Agreement for an additional ten (10) years ("Extension Term").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that the Lease Agreement, between the parties shall
be amended as follows:
FIRST: Paragraph "FIRST: LEASED PREMISES". Landlord leases to Tenant
and Tenant hereby takes office and light manufacturing space comprising
approximately FORTY TWO THOUSAND THIRTY FIVE (42,035) square feet in a building
located at 310 Creekside Drive, Amherst, New York, and more specifically
designated on a plan attached hereto and designated as Schedule "AA" and made a
part hereof.
<PAGE> 55
SECOND: Paragraph "SECOND: TERM." The First Amendment Extension Term
shall commence on the first day of the next month immediately following the
month in which Tenant acceptance of the Additional Leased Premises and shall
continue for a period of ten (10) years. Should any portion of the term of
Tenant's existing Lease Term be remaining upon Tenant's acceptance of the
Additional Leased Premises, said remaining Lease Term shall merge into the
Extension Term. The existing Lease Term shall be extended and remain in
effect until Tenant's acceptance of the Additional Leased Premises.
THIRD: Paragraph "THIRD: RENT." Tenant shall pay rent to Landlord
during the Extension Term in the total amount of ONE MILLION SEVEN HUNDRED
SEVENTY SIX THOUSAND SIXTY and 00/100 ($1,776,060.00) DOLLARS, as follows:
A) On the first day of the first month of this Extension Term, the sum
of THIRTEEN THOUSAND EIGHT HUNDRED THIRTY SEVEN and 00/100 ($13,837.00) DOLLARS
and on the first day of the second month of the tenancy and on the first day of
each and every calendar month thereafter through the sixtieth month of the
tenancy, Tenant shall pay rent to Landlord in the sum of THIRTEEN THOUSAND
EIGHT HUNDRED THIRTY SEVEN and 00/100 ($13,837.00) DOLLARS per month.
B) On the first day of the sixty-first through one hundred twentieth
month of the tenancy, Tenant shall pay to Landlord rent in the sum of FIFTEEN
THOUSAND SEVEN HUNDRED SIXTY FOUR and 00/100 ($15,764.00) DOLLARS per month.
All payments to be made in United States funds.
FOURTH: CONSTRUCTION OF ADDITIONAL LEASED PREMISES. Landlord, within
one hundred fifty (150) days after the signing date of this First Amendment to
Lease shall cause to be built and completed the Additional Leased Premises
consisting of a Building located at 310 Creekside Drive, Amherst, New York,
warehouse and light manufacturing space more specifically described in Schedule
"BB", attached hereto and made a part hereof. The Additional Leased Premises
shall be constructed in a good and workmanlike
-2-
<PAGE> 56
manner. Landlord warrants that the improvements to the Additional Leased
Premises shall be constructed with new materials of good quality and in
accordance with all the currently existing laws, ordinances and statutes of the
municipal or State Governments.
Landlord shall, as part of Additional Leased Premises Construction,
purchase and install equipment and electrical services for the electrical
conversion to PASNY power in an amount not to exceed FIFTY THOUSAND and 00/100
($50,000.00) DOLLARS. Tenant shall reimburse Landlord for any costs beyond
FIFTY THOUSAND and 00/100 ($50,000.00) DOLLARS and Landlord shall supply all
reasonable back up data supporting the invoice which Tenant may require.
FIFTH: DELAYS IN CONSTRUCTION OF ADDITIONAL LEASED PREMISES. In the
event that all improvements have not been completed within one hundred eighty
(180) after the date of signing of this First Amendment, Tenant shall have the
right but not the obligation to enter into possession of such portions as may
be ready for occupancy and Landlord shall diligently proceed to complete
construction so as to place the Additional Leased Premises in conformance with
Schedule "BB" within two hundred ten (210) days of the signing of this First
Amendment to Lease. During any such period of partial occupancy, the rent to
be paid hereunder shall be apportioned as to include only that floor space
actually occupied by Tenant. For the purposes of apportionment of rent under
this Paragraph only, it is agreed that the Additional Leased Premises shall be
let for THREE and 95/100 ($3.95) DOLLARS per square foot. Entering into
possession by Tenant of any portion of the Additional Leased Premises under the
provisions of this Paragraph shall not constitute waiver of Landlord's
obligation to complete unfinished items of construction or to correct defective
work so as to bring the improvements in accordance with Schedule "BB".
SIXTH: POSSESSION. The entire additional Leased Premises shall be
considered ready for possession and Tenant shall accept the entire Additional
Leased Premises when:
-3-
<PAGE> 57
A) The Building has been substantially completed including
interior finishes, all site work and paving, loading docks, and
B) All necessary interior utility fixtures and equipment have
been installed, and
C) The new Building electrical service including primary
service, switchgear, metering, transformer and connection to the existing
distribution system; and
D) Ten (10) days' written notice has been provided to Tenant
that the Leased premises will be ready for occupancy by Tenant; and
E) A Certificate of Occupancy or Temporary Certificate of
Occupancy, issued by the local governmental authority having jurisdiction, has
been issued; and
F) When the above conditions are satisfied, Tenant shall execute
and deliver to Landlord within five (5) days of delivery of the Additional
Leased Premises the acknowledgement of possession statement, attached to Lease
and delineated as Schedule "CC" and made a part hereof.
SEVENTH: EARLY ENTRY. Tenant shall accept the Additional Leased
Premises when ready for possession, as described in paragraph "SIXTH" herein,
and shall pay prorated rent for said early occupancy based on an annual rental
of THREE and 95/100 ($3.95) DOLLARS per square foot until the commencement of
the First Amendment to Lease Term. Landlord shall allow Tenant early entrance
on the Additional Leased Premises to prepare Leased Premises for the
installation of Tenant's fixtures and equipment. Tenant shall obtain prior
written consent of Landlord, which consent (at no cost to Tenant) shall not be
unreasonably withheld, and Tenant shall obey all reasonable restrictions of
Landlord and shall prepare the Additional Leased Premises in a manner so as not
to interfere with Landlord's construction of the Additional Leased Premises.
Upon Tenant's early entry onto the Additional Leased Premises, all terms and
conditions of this First Amendment to Lease
-4-
<PAGE> 58
shall apply as if the Lease Term had commenced except as otherwise stated
herein.
EIGHTH: Paragraph "FIFTH: USE" shall be amended as follows: The Leased
Premises shall be used and occupied by Tenant as office, warehousing and light
manufacturing space and for no other purpose. Tenant shall not cause unlawful
amounts of odor, vibration, fumes, noise and/or nuisance within or beyond the
confines of the Leased Premises and its use shall not result in the
deterioration of the Leased Premises or the Building in which the Leased
Premises is located. In addition, Tenant warrants and represents the following:
a. Tenant shall place waste and refuse matter in the receptacle
provided by Tenant. Tenant shall deposit only acceptable commercial waste in
the aforesaid receptacle. Said acceptable commercial waste shall not include;
Hazardous waste; Pathological waste; Industrial waste; Asbestos waste; Tires;
Batteries; Oil and any wastes packed in drums or drums themselves; and any other
wastes deemed unacceptable on any future date by any appropriate governmental
authority or Landlord's waste hauler.
1. Tenant shall indemnify and hold Landlord harmless
from all costs and expense, including but not limited to, reasonable attorneys
fees, charges, fines and penalties for Tenants deposit of any hazardous waste in
the waste receptacle.
b. Tenant shall, at all times hereunder, comply with all
applicable Federal, State and local environmental, land use, zoning, health,
safety and sanitation laws, ordinances, codes, rules and regulations and
interpretations and orders of regulatory and administrative authorities with
respect thereto, and shall obtain and comply with any and all approvals,
registrations or permits required thereunder. Without limiting the generality
of the foregoing, Tenant shall duly comply with all requirements the New York
State Environmental Conservation Law and the regulations promulgated thereunder.
If required by any governmental agency Tenant shall promptly undertake and
diligently pursue to completion the appropriate and legally authorized remedial
and clean-up action
-5-
<PAGE> 59
in the event any release of oil or Hazardous waste or substances by Tenant,
upon or into the Leased premises, the Building in which the Leased Premises is
located, or the surrounding land area.
1. Tenant shall provide Landlord with copies of any notification of
releases of oil or Hazardous wastes or substances which are given by, or on
behalf of the Tenant to any Federal, State or local agencies or authorities
with respect to the Leased Premises.
2. Tenant shall defend, indemnify, and hold harmless the Landlord, its
employees, agents, officers and directors from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs or expenses in
relation to the release of any oil or Hazardous wastes or substances upon the
Leased Premises, in the Building in which the Leased Premises is located, or
the surrounding land area, provided such release is caused by the act or
omission of Tenant, or its employees, or agents.
3. Tenant shall furnish to Landlord at Landlord's written request,
written certification of its compliance with this Paragraph "FIFTH". Such
certification shall list all hazardous wastes or substances and the quantities
thereof used on the Leased Premises for the past year.
NINTH: "Paragraph SEVENTH: MAINTENANCE (A)". Landlord shall paint
the exterior of the Building as part of Landlord's structural maintenance.
TENTH: "Paragraph EIGHTH: UTILITIES" shall be modified as follows:
Landlord pursuant to the terms of paragraph "FOURTH" herein, shall provide the
metering and billing changes resulting from Tenant's conversion to "PASNY"
power, including but not limited to, a separate meter for electricity to record
all of Tenant's usage in the Leased Premises and common areas.
ELEVENTH: "Paragraph NINTH: ADDITIONAL RENT" shall be amended as
follows:
Subparagraph (3) shall be amended as follows: Notwithstanding anything
herein to the contrary, Tenant shall have
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<PAGE> 60
the right to obtain its own competitive bid for any maintenance services
performed by Landlord under this Lease. If the Tenant's bid is less than that
charged by Landlord's subcontractor for similar quality of service, Landlord
shall either award the contract to Tenant's subcontractor, or charge Tenant the
rate quoted by Tenant's subcontractor and retain its own subcontractor. Nothing
herein shall require Landlord to cancel any existing contracts which cannot be
cancelled without penalty or claim for damages by Landlord's subcontractor.
Subparagraph (5) shall be deleted and replaced with the following:
Tenant shall be responsible for all electrical service to the common areas and
external portions of the building used for external lighting, deep dock pumps
and other exterior use and such usage shall be part of Tenant's metered service
and paid directly by Tenant. Tenant shall further be responsible for water and
sprinkler services of the Building.
The following shall be added:
(8) As to those items which affect the entire Building in which the
Leased Premises is located (so-called common area items), Tenant shall pay
additional rent based on its proportionate share of floor space in the entire
Building in which the Leased Premises is located. If Tenant occupies the entire
Building, its proportionate share shall be one hundred percent (100%); if Tenant
does not occupy the entire Building, Tenant's floor space in relation to the
floor space of the entire Building shall be the factor in determining the
proportionate share of increases to be borne by the Tenant for the purposes of
such computation. The parties do now agree that Tenant shall occupy ninety-two
(92%) percent of Building located at 310 Creekside Drive, Amherst, New York.
Thus, Tenant shall pay ninety two (92%) percent of the common area charges.
(9) The amounts required to be paid by the Tenant to the Landlord,
under this Paragraph "NINTH" hereof, may at the option of the Landlord, be
estimated for a full Lease year and billed monthly in advance at the rate of
one-twelfth (1/12th) of such
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<PAGE> 61
estimate. The Landlord shall make an adjustment based upon actual costs within
ninety (90) days of the end of each Lease year. Any monies due and owing to
Landlord following the end of the Lease year reconciliation shall be paid by
Tenant to Landlord within thirty (30) days of the date of billing. Any such
monies due and owing Tenant following the end of the Lease year reconciliation
shall be credit by Landlord against the next future installments of additional
rent owed by Tenant to Landlord or paid to Tenant by Landlord at Tenant's sole
option.
(10) Dispute Resolution. In the event that tenant disputes any rent
billed, Tenant must nonetheless pay same to Landlord within the time provided
herein or be in default of the Lease. The propriety of such billing shall not
be a defense to any action taken by Landlord for Tenant's failure to pay any
rent as provided herein. In the event tenant disputes any rent billed and
timely paid by Tenant, Landlord shall in good faith diligently review the
disputed item with Tenant within forty five (45) days of written notification
by Tenant of the specific dispute. If the parties cannot come to an agreement,
the dispute shall be resolved as provided for in this Lease. In the event
Tenant then is owed a credit for rent, Landlord shall credit same against:
First: Any rent due and owing by Tenant; Second: Base rent due and owing by
Tenant. Said Tenant's credit shall be issued by Landlord at the next rental
billing period following such determination. Tenant waives its right to
dispute or challenge any additional rent, billing or charge rendered longer
than thirteen (13) months prior to Tenant's notification of Landlord of the
specific dispute as provided herein.
(11) Landlord shall use its best efforts to apply for any tax
abatements available on the Building or Building addition. Any benefit
received from any abatement shall be passed on to the Tenant.
TWELFTH: EXPANSION. Landlord grants Tenant the right to expand the
Leased Premises at Tenant's sole cost and expense. All plans, specifications
and drawings for the expansion shall be
-8-
<PAGE> 62
approved in advance by Landlord which approval shall not be unreasonably
withheld or delayed. Tenant and Tenant alone shall be responsible for all
permits, governmental approvals and shall comply with all laws, statutes and
ordinances of local, State and Federal Governments governing the expansion.
Tenant shall pay no base rent for the expansion in the event Tenant so expands,
however, Tenant shall be responsible for Additional Rent attributable to the
expansion area, if any.
THIRTEENTH: OPTION TO PURCHASE. Provided the Lease has not been
terminated, and provided that Tenant is not in default of any of the terms and
conditions thereunder, Landlord grants to Tenant an option to purchase. To
exercise its Option to Purchase, Tenant must give Landlord twelve (12) months'
written notice prior to the end of the one hundred twentieth (120th) month of
the Lease Term. In the event that Tenant exercises its Option to Purchase as
contained herein, Landlord shall furnish Tenant with good and marketable title,
free and clear of all liens and encumbrances. In the event that Tenant
exercises its Option to Purchase, Tenant shall, at the request of Landlord and
at no additional cost to itself, cooperate with Landlord in a property swap or
exchange pursuant to Internal Revenue Code Section 1031(a) or any equivalent
tax protection mechanism of the Internal Revenue Code which may be in effect at
the time of the exercise of the option. Any such cooperation by Tenant shall
be at no additional cost or expense to Tenant and Landlord shall indemnify and
hold Tenant harmless from any liability as a result of such exchange. The
purchase price shall be the fair market value of the Building at the time of
Tenant's exercise of its option as such fair market value is determined below.
The fair market value shall be determined by each party obtaining within sixty
(60) days of Tenant exercising its option herein, an appraisal of the fair
market value of the Building from a MAI appraiser who maintains an office in
the counties of Erie or Niagara, State of New York. The fair market value for
purposes of determining the purchase price, shall be the average of the two
appraisals. However, in the event that the
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<PAGE> 63
respective opinions of Fair Market Value vary by more than five (5%) percent, at
the request of either Tenant or Landlord, the two appraisers shall choose a
third appraiser. The third appraiser shall then select which of the two
proposed determinations most closely approximate the third appraiser's
determination of Fair Market Value. The determination chosen by the third
appraiser as most closely approximating his determination shall constitute the
decision of the appraisers and shall be conclusive upon the parties. The cost
incurred in connection with the third appraisal shall be split equally between
Tenant and Landlord. Notwithstanding the above, in the event that the fair
market value is less than ONE MILLION NINE HUNDRED THOUSAND and 00/100
($1,900,000.00) DOLLARS then the purchase price shall be ONE MILLION NINE
HUNDRED THOUSAND and 00/100 ($1,900,000.00) DOLLARS; and in the event the fair
market value shall be greater than TWO MILLION FOUR HUNDRED EIGHTY THOUSAND and
00/100 ($2,480,000.00) DOLLARS, then the purchase price shall be TWO MILLION
FOUR HUNDRED THOUSAND and 00/100 ($2,480,000.00) DOLLARS.
FOURTEENTH: OPTION TO RENEW. Provided the Lease has not been
terminated and Tenant is not in default of any of the terms and conditions of
the Lease Agreement and any extensions or renewals thereof, Landlord grants to
tenant an option to renew this Lease for an additional five (5) year term
("Second Extension Term"). Tenant shall notify the Landlord by no later than
one hundred eighty (180) days prior to the Extension Term of its intent to
exercise its option under this paragraph "TWELFTH", the rent during the second
Extension Term shall be FIVE and 36/100 ($5.36) DOLLARS per square foot.
Provided the Lease has not been terminated and Tenant is not in default
of any of the terms and conditions of the Lease Agreement and any extensions or
renewals thereof and Tenant has exercised its option aforementioned, Landlord
grants to Tenant an option to renew this Lease for an additional five (5) year
term ("Third Extension Term") following the expiration of the option
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<PAGE> 64
term. The rent during the Third Extension Term shall be SIX and 05/100 ($6.05)
DOLLARS per square foot.
FIFTEENTH: Except as specifically amended herein, the terms and
conditions of the Lease Agreement between the parties entered into on or about
the 11th day of February, 1987 shall continue in full force and effect
throughout the Extension Term.
IN WITNESS WHEREOF, the parties have affixed their hands and seals the
day and year first above written.
UNILAND DEVELOPMENT COMPANY
By: /s/ NANCY R. DOBSON
-----------------------------
FIBERS DIVISION OF THE CARBORUNDUM CO.
By: /s/ J. DAVID DUNN
-----------------------------
-11-
<PAGE> 65
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this ???? day of December, 1993, personally appeared NANCY R.
DOBSON, AGENT in the UNILAND DEVELOPMENT COMPANY, a General Partnership doing
business under the laws of the State of New York, and he acknowledged to me
that he has executed the within First Amendment to Lease as such Managing
Partner acting on behalf of such partnership.
/s/ F. LOUISE BURNS
-------------------------------------
F. LOUISE BURNS
Notary Public, State of New York
Qualified in Erie County
My Commission Expires Oct. 31, 1995
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 29th day of October, 1993, personally known to me J. DAVID DUNN
of FIBERS DIVISION OF THE CARBORUNDUM CO., being named above, deposes and says
that he is the officer of said corporation, the corporation described in and
who executed the foregoing First Amendment to Lease; that he knows the seal of
said Corporation, that the seal affixed to said First Amendment to Lease is
such Corporate seal; that it was affixed by the order of the Board of Directors
of said Corporation and that he signed his name thereto by like order.
/s/ ROBIN A. ZOLDOWSKI
-------------------------------------
ROBIN A. ZOLDOWSKI
Notary Public, State of New York
Qualified in Erie County
My Commission Expires Feb. 28, 1995
<PAGE> 66
SCHEDULE CC
Tenant shall, on its own stationery, provide to Landlord upon
acceptance or possession of the premises, the following:
"To Whom It May Concern:
On 1993, FIBERS DIVISION OF THE CARBORUNDUM CO. entered into a
Lease Agreement with UNILAND DEVELOPMENT COMPANY for approximately FORTY TWO
THOUSAND THIRTY FIVE (42,035) square feet of office and light manufacturing
space located at 310 Creekside Drive, Amherst, New York. On the day of
1993 Landlord tendered and Tenant accepted possession of the premises.
It is agreed by the parties that the Lease Agreement dated 1993
commences on the first day of 1993 and terminates on the day of 19 ."
<PAGE> 67
PROPOSED EXPANSION FOR
CARBORUNDUM COMPANY, INC.
Audubon Industrial Park - 310 Creekside Drive
Amherst, New York
This drawing, agreement, addendum, Exhibit and/or specification, is
hereby identified and acknowledged as forming a part of the contract documents.
Dated 12-20-93 Schedule BB
--------------------- ---------------
UNILAND DEVELOPMENT COMPANY
- -------------------------------------------------------------------------------
Witness Lessor/Landlord
BY /SIG/
-----------------------------------
???????????? DIVISION OF CARBORUNDUM CO.
- -------------------------------------------------------------------------------
Witness ?????/Tenant
BY /SIG/
-----------------------------------
Project File No. 408 January 4, 1993
<PAGE> 68
BUILDING EXPANSION OUTLINE SPECIFICATIONS
SITE DATA
The site for the Carborundum Company expansion shall consist of approximately
3.04 acres of existing property known as 310 Creekside Drive located in the
Audubon Industrial Park, Town of Amherst, New York.
SITEWORK/PAVING
The existing site shall be altered to include an expansion of approximately
8,750 square feet of new floor area to the existing building. In addition, new
asphalt paving, concrete aprons and curbing shall be installed as detailed in
the proposed site plan, sheet A-1, dated 8/20/93 and revised 11/22/93,
reflecting the revisions to the overall site. All existing employee car parking
spaces shall remain as shown.
SITE LIGHTING
The existing site lighting shall remain with the exception of those eliminated
with the construction of the new expansion. New, building-mounted 480 volt
metal halide fixtures shall be provided at the new shipping and receiving area
and roadway to the east and south of the new building expansion.
BUILDING DATA
The building expansion shall consist of a one-story manufacturing and warehouse
structure.
Warehouse/Manufacturing Area (High Bay)
(See Interior Work Letter Part I) = 8,750 square feet
TOTAL = 8,750 square feet
<PAGE> 69
SITE AND BUILDING UTILITIES
Storm Water: The storm water system for the Carborundum Company expansion shall
be revised to accommodate the new site roadways and driveways to be installed,
along with new catch basins, at the recessed dock area. The entire storm water
system will be revised, altered or changed to meet the provisions of the Town
of Amherst along with their requirements for storm drainage runoff.
Sanitary Sewer: No sanitary sewer work is planned for the expansion of the
Carborundum Company building.
Water Service: The existing water service for the Carborundum Company facility
will be expanded to provide water in the new expansion area. This will include
the installation of one (1) 3/4" copper line to provide two (2) frost-free hose
bibs located at the north and south elevations of the facility.
ELECTRICAL SERVICE
The buildings existing electrical service shall remain. In addition, a new, 480
volt distribution panel at 100 amps will be provided within the new expansion
area. This distribution panel will serve lighting for the new area.
NATURAL GAS
The natural gas service which presently exists will be expanded and extended
into the new building expansion area. Gas will be the sole source for heating
this new facility.
<PAGE> 70
BUILDING STRUCTURE
Foundation: The foundations for the expansion of the Carborundum Company shall
consist of 12" thick cast-in-place, steel reinforced concrete footers and
foundation walls. All concrete shall have a minimum compressive strength of
3,500 PSI; all exterior foundation walls shall be insulated and meet all
requirements and provisions of the New York State Energy Conservation Code.
Wall Construction: The exterior wall construction for the Carborundum Company
expansion shall consist of insulated 12" concrete masonry block units. The
masonry wall shall be reinforced structurally by bond beams and structural
reinforcement as necessary. The exterior of all new masonry walls shall
receive a two part finish consisting of primer/sealer/filler and finish paint
to match existing building. The entire wall system shall be engineered to meet
the requirements of the New York State Energy Conservation Code.
Floor Construction: The floor construction for the Carborundum Company
expansion shall consist of 6" of 3,500 PSI concrete, reinforced with 10-gauge
6" x 6" welded wire fabric. Concrete floor expansion shall be provided at all
exterior walls and interior columns. In addition, 1-1/2" deep control joints
shall be provided at all column center lines or a maximum floor slab area
not to exceed 25' x 25'.
Roof Construction: The roof construction shall consist of structural steel and
related steel bar joist and joist girders. The steel joist shall be spaced at a
minimum of 5'-0" on center, meeting all the requirements of the New York State
Building Codes as well as the Steel Joist Institute of America. The roof system
shall consist of 22-gauge type B prime painted roof deck, a minimum 3" of
expanded polystyrene insulation and rubber membrane ballasted roof system. The
entire roof system shall meet the provisions of the New York State Energy
Conservation Code; the roof shall also carry a ten-year warranty on all labor
and material. The perimeter edge of all exterior walls shall be capped and
flashed with clear, anodized aluminum flashing.
Shipping and Receiving Area: A new shipping and receiving facility shall be
provided within the new expansion of the Carborundum Company structure
consisting of one (1) grade entry overhead, steel insulated,
electrically-operated door, along with two (2) 48" recessed dock overhead
doors, 8'-0" wide x 9'-0" high equipped with dock bumpers.
In addition, a new retaining wall and railing shall be provided between the
grade access and recessed docks. Also, one (1) new 3' x 7' employee entry door
or shipping/receiving door will be installed adjacent to the grade level door.
Additional man doors will be provided along the north side of the building for
emergency egress use.
<PAGE> 71
INTERIOR WORK LETTER
Warehouse / Manufacturing Area
Part I
TENANT Carborundum Company, Inc.
Audubon Industrial Park
310 Creekside Drive
Amherst, New York
FILE NUMBER 408
DATE January 4, 1993
SQUARE FOOTAGE 8,750 square foot expansion area
1000.00 INTERIOR WALLS
1000.10 SEPARATION WALLS
WALL TYPE B
The walls separating the existing warehouse/manufacturing area
from the new area will be constructed with masonry block.
ALLOWANCE: All separating walls necessary to define new
areas from existing warehouse/manufacturing areas.
1100.00 WALL FINISHES
1100.10 MASONRY PAINT / PRIMER
All masonry walls located in the warehouse/manufacturing area
shall be primed with one (1) coat of masonry filler primer and
two (2) coats of Benjamin Moore Regal Aqua Pearl (301) vinyl
acrylic latex pearl finish or equal.
ALLOWANCE: All masonry walls located in the
warehouse/manufacturing area shall be painted the color
specified by the tenant.
<PAGE> 72
1200.00 CEILINGS
1200.10 EXPOSED BUILDING STRUCTURE AND ROOF DECK
The ceiling within the warehouse/manufacturing area shall be
the base building exposed structural system, beams, joist,
joist girders and roof deck.
ALLOWANCE: All areas as defined as warehouse/manufacturing
area.
1300.00 FLOOR FINISHES
1300.10 CONCRETE FLOORS
Concrete floors shall receive two (2) coats of acrylic coating
with color as specified by the tenant
ALLOWANCE: All areas as defined as warehouse/manufacturing
area.
1400.00 WALL BASE
1400.10 VINYL BASE
Vinyl base shall be 1/8" x 4" cove, as manufactured by
Armstrong or equal.
ALLOWANCE: Vinyl base shall be provided along all wall types
of gypsum board construction.
<PAGE> 73
1500.00 DOORS AND FRAMES
1500.10 EXTERIOR MAN DOORS
Man doors shall be 1-3/4" x 3'-0" x 7'-0" steel insulated,
mounted in steel frames with commercial grade hardware,
consisting of 1-1/2 pair hinges, closure, weather-stripping,
lockset and panic device on all exit doors. Door and frame
shall be factory primed and receive two (2) coats of semi-
gloss enamel paint finish.
ALLOWANCE: Man doors shall be provided as required per current
[at time of construction] building codes.
1500.20 OVERHEAD DOORS
Overhead doors shall be thermospan steel insulated doors with
factory finished steel panel on both sides with high lift
hardware, weather-stripping and manual slide bolt lock as
manufactured by Wayne Dalton or equal.
ALLOWANCE: Overhead doors shall be installed in size and
quantity as detailed in the building outline specifications or
as indicated on the attached floor plan.
1600.00 DOCK EQUIPMENT
1600.10 DOCK BUMPERS
Dock bumpers shall be one (1) piece construction of high
impact vinyl with steel angle frame permanently mounted to
building structure.
ALLOWANCE: One (1) pair of dock bumpers for each recessed
shipping and receiving overhead door as indicated on the
attached floor plan.
<PAGE> 74
1700.00 MECHANICAL SYSTEMS
1700.10 HEATING SYSTEM
The warehouse/manufacturing area shall be heated only,
utilizing ceiling-mounted natural gas unit heaters as
manufactured by Reznor or equal. All unit heaters shall have
direct spark ignition, aluminized heat exchangers, single
stage combustion gas valve, fan and high limit safety controls
and operate at a minimum of 80% fuel efficiency.
<TABLE>
<CAPTION>
HEATING:
-------
<S> <C>
Outdoor Design Temperature 0 degrees F
Indoor Average Design Temperature 68 degrees F
</TABLE>
1700.20 HEATING CONTROLS
Heating shall be controlled by Honeywell or equal thermostat
for each unit heater.
ALLOWANCE: One (1) thermostat for each unit heater.
<PAGE> 75
1800.00 ELECTRICAL
1800.10 FLUORESCENT LIGHTING
Fluorescent lighting fixtures shall be two (2) tube, 8'-0"
long fixtures as manufactured by Lithonia or equal and mounted
to exposed steel bar joist or building structure, equipped
with energy saving ballast and lamps.
ALLOWANCE: Fluorescent lighting shall be installed to obtain
an average foot candle level of thirty-five (35) at 42" above
finished floor level. Fluorescent lighting shall be installed
in all areas of less than 5,000 square feet of floor area or
as regulated by New York State Energy Conservation Code.
1800.20 DISTRIBUTION
Duplex receptacles shall be 15 amp, 125 volt capacities.
Standard color shall be ivory with matching cover plate or
exposed galvanized steel box and cover, if surface mounted.
All receptacles shall be commercial specification grade, as
manufactured by Hubbell or equal.
ALLOWANCE: Duplex outlets shall be as provided at the
rate of one (1) per 1,000 square feet.
1900.00 LIFE SAFETY SYSTEMS
1900.10 EMERGENCY LIGHTING
Exit devices shall be ceiling- or wall-mounted with exit
direction indicator illuminated with compact fluorescent lamp
and powered by the suites main electrical service. During
power failure, the fixture shall be operated by battery
back-up. Exit lights shall be as manufactured by Lithonia
emergency lighting systems or equal.
ALLOWANCE: One (1) illuminated exit sign for each
warehouse/manufacturing area. One (1) emergency light fixture
per 5,000 square feet.
<PAGE> 76
2000.00 PLUMBING
2000.10 ROOF DRAINS
Provide interior piped roof drains per New York State Plumbing
Code.
<PAGE> 77
GLOSSARY
BUILDING OUTLINE SPECIFICATIONS: The general construction information relating
to a particular building and site along with the standard finish, details, etc.
B.T.U.H. (BRITISH THERMAL UNIT PER HOUR): The measurement of heat
transference, per hour.
C.F.M. (CUBIC FEET PER MINUTE): The measure of the volume of air flow.
COMMON AREA DEMISING WALLS: Fire rated partition walls which separate tenants
space from common areas, such as corridors.
DEMISING WALLS: Fire rated partition walls that define and separate tenants
occupied space or separate occupancy types.
FIBERGLASS SOUND BATT INSULATION: Fiberglass insulation in the form of sound-
deadening material used in the walls, ceilings or floors used to lessen the
intensity of sound transmission.
FOOT CANDLE: The unit of measurement of illumination, luminance or brightness
at a certain level or surface that represents a maintained level of lighting.
HVAC (HEATING, VENTILATING AND AIR-CONDITIONING):
INTERIOR FINISH GROUP: Landlord's compilation of pre-selected finish
packages: includes color-coordinated selections which are readily available.
NON-OCCUPIED AREAS: Areas not used for office or work stations such as storage,
closets, file rooms, etc.
N.R.C. (NOISE REDUCTION CO-EFFICIENT): The unit of measure of the sound
absorption qualities of the particular material.
OFFICE SEPARATION WALLS: Fire rated partition walls required by Code,
separating different occupancy types within the tenants office.
OUTDOOR DESIGN TEMPERATURE: The temperature used to determine the
heating/cooling loads required to design the HVAC system.
PLENUM: The space between the ceiling line and the floor or roof line above.
<PAGE> 78
RENTABLE AREA: The area inclusive of the tenant-occupied area as well as the
tenants allocation of the common areas of the building.
SF (SQUARE FOOT)
SHADOWLINE CEILING TILE: Refers to a trade name for a special type of recessed
edged ceiling tile.
STATIC GENERATION: Amount of static electricity that can be generated by a
material.
S.T.C. (SOUND TRANSMISSION CO-EFFICIENT): The ability of an acoustical material
to attenuate (weaken or lessen) the intensity of sound energy passing from one
room to another via the walls or plenum space shared by two adjacent rooms.
SUITE: The actual occupied tenant space.
SUPPLY AIR SYSTEM: The assembly of connected ducts, fittings and grilles
through which air from the heat exchanger is heated or cooled and conducted to
the space or spaces to be heated or cooled.
ZONE: A specific "defined" area of the suite which receives heating or cooling
from a single HVAC unit.
<PAGE> 79
COMPANY: Standard Oil AUTHORIZED AMOUNT: $571,065
Engineered Materials
LOCATION: Amherst, New York
AFE NO.: CBR-977
PROJECT: Amherst Lease Expansion
PROJECT TYPE: Cost Savings/Volume
REQUEST:
The Fibers Division requests approval to lease an additional 3150 square feet
of space at its Amherst, New York manufacturing facility. In addition, a
four-year lease extension for the entire facility is proposed.
BACKGROUND:
During 1986 our expanding paper laminating and die cutting process were
installed in the Amherst, New York manufacturing plant. This new product line
has grown from zero to sales of $1.2 Million in 1987. Sales are expected to
double in 1988. Existing on-site storage space for raw materials and
work-in-process has been outgrown. The excess volume is presently stored at a
site 10 miles from the plant. This results in double or triple handling and
disproportionate increases in damage and handling costs.
The proposed space will eliminate this problem by allowing on-site storage.
The Division will save approximately $52,000 per year for an incremental
cost of $34,221 over a 33 month lease term. This space will have
adequate storage capability through 1993.
The existing lease of 30,135 square feet expires December 1, 1989. The
building owner, (Uniland Development) is requesting Standard Oil to extend this
commitment until December 31, 1993. If this lease is extended, Uniland will
at their own expense remove all partitioned walls between existing Standard Oil
space and the newly acquired space. In addition, Uniland will cut an eight
foot opening in an interior block wall to supply access to the Textile
operation. The Fibers Division will then occupy the entire first floor of
the Uniland building. The undiscounted cost of this lease extension is
$536,844 over the 49 month period.
FINANCIAL:
An analysis was completed assuming the cost savings and related lease expenses
associated with the above proposal.
The discounted cash generation results from leasing the proposed space over a
33 month period amounts to $62,200. The capitalized value of this leased
space addition totals $29,800.
Extending the existing lease through December 31, 1993 results in a capitalized
lease value of $446,000 assuming an 8.5% cost of debt. The capitalized value of
the total proposal amounts to $475,800.
<PAGE> 80
AMHERST LEASE COSTS SUMMARY
START DATE: 03/01/87
END DATE: 12/31/93
EXISTING COMMITMENT:
$8,629.70 per month 3/1/87 - 11/30/89 - 33 months
Present commitment = $284,780.10
ADD "RONCO" SPACE CONCURRENT WITH EXISTING COMMITMENT
$1,037 per month 3/1/87 - 11/30/89 - 33 months
Concurrent addition = $34,221
EXTENSION OF COMBINED LEASE
$10,956.00 per month 12/1/89 - 12/30/93 - 49 months (34th through
82nd)
Extension total = $536,844.00
TOTAL NEW COMMITMENT TO BE APPROVED:
$34,221 + $536,844 = $571,065
TOTAL NEW + OLD COMMITMENT AFTER 3/1/87 = $855,845.10
GDB
JANUARY 27, 1987
<PAGE> 81
PROJECT SUMMARY FORM AFE NO. CBR-977
- --------------------------------------------------------------------------------
Project Name Department Location
Textile Plant Lease Fibers Division Amherst, N.Y.
Request for Lease Authorization
- --------------------------------------------------------------------------------
Request for Approval
--------------------
Description of Project, its Location, Physical Purpose and Characteristics,
and our Participation. We will lease 3150 ft. (2) of additional manufacturing
space. The existing lease will be extended for four additional years for
manufacturing of Textiles and Expanding Paper at Amherst, NY.
Contemplated Completion Date 12/31/93
-----------------
Reason for Project
To increase production space for "Expanding Paper" to meet increasing sales.
Alternative Method(s) of Accomplishing
Expand warehouse space at Bell and/or relocate to another site.
Rationale for Proposed Solution
Expansion at Amherst will provide the lowest production cost of available
options. Better utilization of existing plant personnel and equipment will
also be realized.
Capital in Approved Budget $
-----------
Present Estimate of Capital Required $
-----------
Remarks
Economic Evaluation Investment
Capital $_________ (All Other Detail)
Expense $_________ Existing Assets Used $_________
All Other $_________ SOHIO Engineering Costs $_________
Total $_________ Pre-Start Up Costs $_________
Fixed Costs $_________
Undiscounted
Value $571,065 Working Capital $_________
Capitalized
Value 475,800 All Other $_________
- --------------------------------------------------------------------------------
Incremental Over
Economic Indicators Most Likely Conservative Optimistic Alternative
- ------------------- ----------- ------------ ---------- -----------
Investor's Rate or Return
SOHIO Index
Discounted Payout (Cumulative)
NPV
- --------------------------------------------------------------------------------
Critical Economic Assumptions
-----------------------------
1. Textile plant operates through 1993.
2. "Expanding Paper" production continues through 1993.
3. Possession of the complete 1st floor of the building via this lease is a
major logistic improvement over our existing, separated spaces.
Include When Appropriate
- --------------------------------------------------------------------------------
Date Recommended By Date
/s/ G.D. BRITTON By /s/ G.E. GILLESPIE 1/29/87
- -------------------------- -----------------------
G.D. Britton G.E. Gillespie
/s/ T.L. VESNESKE
- --------------------------
T.L. Vesneske
- --------------------------------------------------------------------------------
Authorization For Expenditure
(Fill in when Approved)
/s/ E.J. KITS /s/ W.A. HORSEWOOD
- -------------------------- ---------------------
E.J. Kits W.A. Horsewood
/s/ R.W. WOLF /s/ R.L. HOOVEN
- -------------------------- ---------------------
R.W. Wolf R.L. Hooven
/s/ B.E. PERSHING B.M. KIRCHNER 1/29/87
- -------------------------- ---------------------
B.E. Pershing B.M. Kirchner
- --------------------------------------------------------------------------------
A.F.E. No. Approved By Date
/s/ R.R. BOLLER 1/29/87
---------------------
$ R.R. Boller
- --------------------------------------------------------------------------------
A.F.E. Sup. No. Approved By Date
/s/ L.L. KAHL 1/30/87
---------------------
$ L.L. Kahl
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 10.5
LEASE
-----
THIS LEASE is made this ____ day of June, 1996, between Elm Holdings
Inc., a Delaware corporation and successor-in-interest to the Carborundum
Company (hereinafter called the "Lessor") and Unifrax Corporation, a Delaware
corporation (hereinafter called the "Lessee").
WITNESSETH:
-----------
ARTICLE I
---------
GRANT AND TERM
--------------
1.1 PREMISES. In consideration of the rents, covenants and agreements
herein contained, the Lessor hereby demises and leases unto the Lessee and the
Lessee rents from the Lessor a portion of that certain real property currently
known for street location purposes as 2050 Cory Drive, Sanborn, New York 14132
and fully depicted and described on the attached EXHIBIT A which is incorporated
herein by this reference (such real property, but excluding buildings,
improvements and fixtures now placed on such real property which are owned by
Lessee, is hereinafter referred to as the "Leased Premises").
1.2 PURPOSE AND TERM. TO HAVE AND TO HOLD the Leased Premises unto
Lessee for use by Lessee in engaging in the manufacture and sale of ceramic
fiber products or such other use permitted by law (the "Lessee's Business") for
a period of twenty (20) years beginning on the ___ day of _________________,
1996, and ending on the ____ day of ____________, _____ (the "Initial Term").
The Initial Term and any other periods of extension are herein collectively
called the "Term." Notwithstanding the above provisions, Lessee shall have the
unfettered right to terminate this Lease, abandon all fixtures and real property
rights upon 60 days notice to Lessor, provided, however, all personal or trade
fixtures shall be removed in accordance with Section 3.3 hereof.
-1-
<PAGE> 2
1.3 COMMON AREAS. The parties will have the following rights and
responsibilities for the common areas respecting the Leased Premises and the
other contiguous real property owned by Lessor:
EASEMENT. Lessee will enjoy the benefits, subject to the burdens of, an
access easement to use the right-of-way over the asphalt road which serves as
the entrance to the Leased Premises as shown on the site survey attached hereto
as EXHIBIT B (the "Entrance") pursuant to a separate Easement Agreement dated as
of February 4, 1993 originally between Lessee and Metaullics Systems Co., L.P.,
and assigned to Lessor and attached as Exhibit C (the "Easement").
ARTICLE II
----------
RENT - TAXES - UTILITIES
------------------------
2.1 MINIMUM RENT. Lessee covenants and agrees with Lessor to pay as
minimum rent for use of the Leased Premises the sum of One Dollar ($1.00) per
year and other valuable consideration herein specified payable at such address
as Lessor shall designate and due in full and in advance on the first day of
each year during the term of this Lease, which amount may be paid in full for
the Initial Term in the sum of $20.00 upon execution of this Lease.
2.2 REAL ESTATE TAXES. During the Term of this Lease, Lessee agrees to
pay all real estate taxes and assessments due or to become due on the Leased
Premises. Lessee also agrees to be responsible for any taxes or assessments
directly related to Lessee's use of the Leased Premises or Lessee's buildings,
fixtures or personal property located thereon. Lessee shall not, however, be
required to pay any inheritance, franchise, income, rent, personal property or
similar taxes levied on the business or operations of Lessor.
2.3 UTILITIES. During the Term of this Lease, Lessee covenants and
agrees with Lessor to pay for, as and when due, all electric current, all gas
used for or in relation to the Leased Premises, water charges including sewer
taxes, rentals and surcharges, at the rates of the utility company or
municipality supplying the service and according to the readings of the meters
-2-
<PAGE> 3
or submeters measuring the quantity furnished to the Leased Premises and all
other utilities, if any.
ARTICLE III
-----------
POSSESSION, USE AND SURRENDER OF PREMISES
-----------------------------------------
3.1 POSSESSION AND SURRENDER. Lessee shall take possession of the
Leased Premises in the condition in which they are at the beginning of the
Initial Term. At the end of the Term, assuming Lessee does not elect to exercise
its Purchase Option contained in Article IX below, Lessee shall deliver all keys
to Lessor and leave the Leased Premises in as good condition as received, except
for reasonable wear and tear. Any merchandise, material or waste left on, in, or
about the Leased Premises or adjacent interior or exterior areas by Lessee after
the end of the Term may be summarily removed and stored or disposed of by Lessor
without notice to Lessee and at Lessee's expense.
3.2 USE OF PREMISES. Lessee shall use and occupy the Leased Premises in
a reasonably safe and careful manner in operating the Lessee's Business,
conforming to normal practices in Lessee's trade or industry. If Lessee shall
make any alterations or improvements to the Leased Premises, the same shall be
completed in good and workmanlike manner, free of liens of contractors,
materialmen or laborers. Any alterations, improvements or the installation or
relocation of major equipment shall be at Lessee's sole cost and expense. Lessee
shall conform to and obey all laws, ordinances, rules, regulations, requirements
and orders of all governmental bodies or authorities respecting its use of the
Leased Premises, including compliance with all permits governing storm or
sanitary sewer discharge. To the extent practicable, the parties will obtain
separate permits, licenses and governmental authorizations relating to Lessee's
use, occupation an discharge into the environment from the Leased Premises.
3.3 REMOVAL OF TRADE FIXTURES. If Lessee is not in default hereunder,
all trade fixtures and/or equipment installed on the Leased Premises and owned
by Lessee may be removed at the end of the Term of this Lease; provided,
however, that Lessee shall repair, at its own expense, any injury to the Leased
Premises resulting from such removal.
-3-
<PAGE> 4
ARTICLE IV
----------
MAINTENANCE OF THE PREMISES
---------------------------
4.1 REPAIRS/MAINTENANCE BY LESSEE. Lessee covenants and agrees to keep
and maintain the Leased Premises in good order, condition and repair,
substantially the same as the existing condition of the Leased Premises, normal
wear and tear excepted.
4.2 LESSOR'S RIGHT TO ACCESS. Lessee covenants and agrees to permit
Lessor to enter the Leased Premises at all reasonable or necessary times, upon
at least 24 hours prior written notice, to examine their condition or to take
any action as provided hereunder. Lessor shall be permitted to enter the Leased
Premises at any time, without notice, in the event of an emergency. During the
last twelve (12) months of the Term of this Lease, Lessor shall have the right
to show the Leased Premises to prospective tenants at all reasonable times and
to maintain a "for rent" sign on the exterior thereof.
4.3 CASUALTY DAMAGE. Lessor and Lessee agree that if during the Term
hereof the Leased Premises shall be damaged or destroyed by fire or other
casualty, then Lessee may, but shall not be required to, repair such damage or
destruction and restore the Leased Premises as nearly as practicable to its
condition immediately preceding such damage or destruction and Lessee may use
and apply the available net insurance proceeds towards such repairs and
restoration. If Lessee does not choose to repair any such damage and restore the
Leased Premises to its prior condition, this Lease shall terminate and Lessee
shall within 180 days following the incident causing such damage remove all
debris, trade fixtures, equipment and personal property on the Leased Premises.
4.4 MECHANIC'S LIENS. If, because of any act or omission of Lessee or
anyone claiming by, through or under Lessee, any mechanic's or other lien or
order for the payment of money shall be filed against the Leased Premises or
against Lessor (whether or not such lien or order is valid or enforceable as
such), Lessee shall, within thirty (30) days after the date of filing thereof,
excluding any delay due to cause(s) beyond the control of Lessee, at its own
cost and expense, cause the same to be canceled and discharged of record by
payment or bonding and Lessee shall also indemnify and save harmless Lessor
-4-
<PAGE> 5
from and against any and all costs, expenses, claims, losses or damages,
including reasonable counsel fees, resulting therefrom or by reason thereof.
ARTICLE V
---------
INSURANCE AND LIABILITY
-----------------------
5.1 INSURANCE. Lessee shall during the Term and at its own expense,
carry all risk public liability insurance with at least $1,000,000.00 bodily
injury and $500,000.00 property damage limits, with Lessor named as an
additional insured. It is acknowledged and agreed that insurance provided by
Lessee is primary to any insurance provided by Lessor. Lessee further covenants
and agrees to carry fire and extended coverage insurance on the Leased Premises,
with companies qualified in the State of New York, for the full insurable value
of the building(s) on the Leased Premises. Lessee further agrees to exhibit such
policies or certificates of such policies to Lessor upon reasonable request and
agrees that such policies shall not be subject to cancellation or modification
unless ten (10) days prior written notice of such cancellation or modification
is first provided to Lessor.
5.2 LESSOR'S NON-LIABILITY. Lessor shall have no responsibility for the
care or safety of any buildings, equipment, merchandise, fixtures or accretions
to the Leased Premises or kept on the Leased Premises by Lessee, and shall not
be liable for any damage caused directly or indirectly by acts or omissions of
others.
5.3 MUTUAL WAIVER OF SUBROGATION. To the extent they may do so without
invalidating their respective policies of insurance, if any, Lessor and Lessee
each agree to and hereby do waive all rights of recovery and causes of action
against the other for damage to property caused by any of the perils covered by
any of their respective policies of insurance as now or hereafter in force,
notwithstanding that any such damage or destruction may be due to the negligence
of either party or persons claiming under or through them.
ARTICLE VI
----------
EMINENT DOMAIN
--------------
-5-
<PAGE> 6
6.1 EMINENT DOMAIN. Appropriation by eminent domain or similar
proceeding of the Leased Premises shall terminate this Lease as of the date of
such appropriation. For purposes of this Article, the terms "appropriation" or
"appropriated" shall mean a taking in condemnation proceeding by right of
eminent domain, or a conveyance by Lessor to a public or quasi-public authority
under threat of condemnation, and the date of appropriation shall be the date on
which any such event occurs. If part, but not all, of the Leased Premises be
appropriated, and loss of the part appropriated would have a significant
detrimental effect on Lessee's use of the Leased Premises, then Lessee shall
have the right to cancel this Lease by written notice to Lessor given within
fifteen (15 ) days after such appropriation. In the event Lessee elects to
cancel this Lease pursuant to this Article 6.1, Lessee shall vacate the Leased
Premises as of the date the Leased Premises are to be delivered to such
appropriating agency or body. If Lessee does not exercise its cancellation
right, Lessee shall, at the expiration of the fifteen (15) day period, proceed
with all reasonable dispatch to repair any damage to the Leased Premises caused
by the appropriation, and Lessee shall be entitled to an equitable adjustment in
the rent accruing hereunder, from the date of appropriation, proportionate to
that part of the Leased Premises so taken.
6.2 ALLOCATION OF AWARD. Lessee shall be entitled to receive the entire
award or settlement of damages representing the value of land and building
appropriated, or any estate therein, or damage to the residue of the Leased
Premises, it being agreed that as between Lessor and Lessee, any such award
shall be the sole property of Lessee. Lessee may also claim and receive
compensation from the condemning authority for damage to its fixtures, for the
cost of removal and damage by reason thereof, and for any other direct loss or
damage it may suffer by reason of the appropriation.
ARTICLE VII
-----------
DEFAULT BY LESSEE
-----------------
7.1 DEFAULT BY LESSEE. If Lessee shall at any time be in default in the
payment of rent or other charges due hereunder relating to the payment of money
and Lessee shall fail to remedy such default with twenty (20) days after
-6-
<PAGE> 7
written notice from Lessor; or if Lessee shall at any time be in default with
respect to performance of its other agreements hereunder (relating to matters
other than the payment of money) and Lessee fails to commence to remedy such
default within thirty (30) days after written notice from Lessor and thereafter
diligently to pursue correction thereof; or if a receiver of any property of
Lessee on Leased Premises is levied upon by legal process, or Lessee by adjudged
bankrupt, and Lessee fails within sixty (60) days to commence and thereafter
diligently to pursue proceedings for the vacation of such appointment, levy or
adjudication; or if Lessee shall dispose of all or substantially all of its
assets in bulk, or make an assignment for the benefit of its creditors or
voluntarily commence any bankruptcy, receivership or insolvency proceeding,
then, and in any such instance, Lessor may enter upon and retake the Leased
Premises notwithstanding the provisions of this Lease, and , in the event of
such entry, Lessor may terminate this Lease upon ten (10) additional days notice
and opportunity to cure being provided to Lessee, in which event the obligations
of Lessee hereunder shall cease, without prejudice however to the right of
Lessor to recover from Lessee for rent to the date of entry.
Upon any such entry, Lessor may remove all persons and property from
the Leased Premises, and such property may be removed and stored at a public
warehouse or elsewhere at the cost of and for the account of Lessee, all without
service of notice or resort to legal process (all of which Lessee expressly
waives), and without Lessor being deemed guilty of trespass, or becoming liable
for any loss or damage which may be occasioned thereby except any loss or damage
arising from Lessor's gross negligence or willful misconduct. The rights of
Lessor specified in this Article VII and elsewhere in this Lease are the
exclusive rights and remedies of Lessor in the event of a default by Lessee.
7.2 INTEREST. Any amounts which become due and payable to Lessor under
this Lease, and which remain unpaid for ten (10) days after the due date
thereof, shall bear interest at a rate per annum equal to the prime rate of
interest announced from time to time by Key Bank PLUS three percent (3%) from
the date or dates such amount(s) shall become due and payable until the date or
dates of payment. Interest on amounts which become due and payable may be
charged against Lessee without waiving any other rights to which Lessor may be
entitled under this Article VII.
-7-
<PAGE> 8
ARTICLE VIII
------------
REMEDIATION
-----------
8.1 REMEDIATION. This Article intentionally deleted; reference should
be made to the Stock Purchase Agreement for provisions regarding remediation.
ARTICLE IX
----------
OPTION/REQUIREMENT TO PURCHASE
------------------------------
9.1 OPTIONS. For good and valuable consideration, the receipt and
sufficiency of which is hereby expressly acknowledged, Lessor hereby grants to
Lessee an exclusive option (the "Purchase Option") to purchase the Leased
Premises for $1, such Purchase Option being exercisable at any time during the
time period (the "Purchase Period") from the date hereof until the expiration of
the Term.
9.2 EXERCISE OF OPTIONS. If Lessee elects to exercise its Purchase
Option, Lessee shall deliver to Lessor written notice of such election within
the Purchase Period. The notice shall specify a proposed closing date for the
purchase and sale transaction (the "Sanborn Closing"), which date shall be at
least twenty (20) but not more than sixty (60) days from the date of the notice
of election to exercise.
9.3 CLOSING OF PURCHASE/SALE TRANSACTION. Upon the Closing of the
purchase and sale transaction, Lessor shall deliver to Lessee (a) a duly
executed limited warranty deed, in form reasonably satisfactory to Lessee,
conveying the Leased Premises (which shall be a separately described parcel for
tax and all other purposes) to Lessee free and clear of all liens, other than
Permitted Liens (which term, as used herein, shall mean those items shown on
Schedule B of [Ticor Title Company Commitment Number T5292-01910 dated December
1, 1992 ] which items are numbered 8, and 13 and taxes and assessments not then
due and payable) and those liens and encumbrances caused by Lessee, (b) and
owner's title insurance policy issued by Ticor Title Insurance Company, or
another title company acceptable to Lessee, in the amount of [$500,000] insuring
fee in simple title to the Leased Premises to be
-8-
<PAGE> 9
in the Lessee as of the Closing, with Lessor using its best reasonable efforts
to have Schedule B general exceptions deleted and subject only to Permitted
Liens and those liens and encumbrances caused by Lessee and (c) current survey
of the Leased Premises prepared by a registered surveyor, which survey shall be
certified by Lessee, the title company and to Lessee's lender and shall include
a calculation of the total square footage of the Leased Premises, a legal
description of the land, all improvements, boundaries, set back lines and
easements and all other information normally included on certified surveys in
accordance with ALTA/ACSM minimum survey standards. Upon the Closing of the
purchase and sale transaction, Lessee's leasehold rights granted herein shall
merge with and into its fee interest and this Lease shall terminate.
9.4 COSTS AND FEES. Lessor and Lessee agree to share equally the costs
and fees related to the title commitment, the title policy, the survey, all
transfer taxes and all recording or escrow costs. Lessor shall pay and be solely
responsible for all amounts due to discharge any lien encumbering the Leased
Premises and all costs associated with the title company insuring over any
defects in title.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 QUIET ENJOYMENT. Lessor covenants and agrees that if Lessee pays
the rent and other charges herein provided, and performs all the covenants and
agreements herein provided, and performs all the covenants and agreements herein
stipulated to be performed on Lessee's part, Lessee shall, at all times during
the Term of this Lease have the peaceable and quiet enjoyment and possession of
the Leased Premises without any manner of hindrance from Lessor or from any
other persons except as to any portion of the Leased Premises that may be taken
by eminent domain.
10.2 ASSIGNMENT AND SUBLETTING.Upon obtaining Lessor's consent, which
will not be unreasonably withheld, Lessee shall have the right to (i) assign,
convey, mortgage or hypothecate this Lease or any interest therein; (ii) allow
any transfer hereof; (iii) sublet or license the premises or any part thereof;
or (iv) permit the use or occupancy of the premises or any part thereof by
anyone other than Lessee for any purpose. For avoidance of doubt, any
-9-
<PAGE> 10
stock transfer by shareholders of Lessee not amounting to a change in control of
Lessee shall not be deemed an assignment of this Lease requiring Lessor's
consent.
10.3 SHORT FORM LEASE. The parties shall execute a short form or
memorandum of lease for recording purposes which shall contain sufficient
information to protect the leasehold estate and rights of Lessee and Lessor
hereunder.
10.4 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent or of partnership, joint venture, or any
other association whatsoever between Lessor and Lessee, it being expressly
understood and agreed that neither the computation of rent nor any other
provisions contained in this Lease, nor any act or acts of the parties hereto,
shall be deemed to create any relationship between Lessor and Lessee other than
a relationship of landlord and tenant.
10.5 SURRENDER/HOLDING OVER. Upon the termination of this Lease, or
upon the termination of Lessee's right to possession without termination of this
Lease, Lessee must surrender possession and vacate the Leased Premises
immediately.
10.6 REMEDIATION ACCOMMODATION. This section intentionally deleted.
10.7 NO WAIVER. No waiver of either party hereto shall be valid unless
the same is in writing. No consent or waiver, express or implied, regarding any
breach of any covenant, condition or duty imposed herein shall be construed as a
consent or waiver regarding any future breach of the same or any other covenant,
condition or duty.
10.8 NOTICES. Any notice provided or permitted to be given under this
Agreement must be in writing, and may be served by (a) depositing same in the
United States mail, addressed to the party to be notified, postage prepaid, (b)
registered or certified mail with return receipt requested, (c) by delivering
the same in person to such party at the respective addresses listed below or (d)
by delivery by a recognized national overnight delivery service such as Federal
Express, Purolator, etc. Notice given in accordance herewith
-10-
<PAGE> 11
shall be effective three (3) days after depositing the same in the United States
mail, two (2) days after the same is sent by registered or certified mail,
immediately upon personal delivery or one (1) day after sending the same by a
recognized national overnight delivery service. For purposes of notice, the
addresses of the parties shall be as follows:
If to Lessor: Elm Holdings Inc.
200 Public Square 11-3006-W
Cleveland, Ohio 44114-2375
ATTN: Law Department
With a copy to: BP America Inc.
200 Public Square 11-3006-W
Cleveland, Ohio 44114-2375
ATTN: Law Department
If to Lessee: Unifrax Corporation
2351 Whirlpool Street
Niagara Falls, New York 14302
ATTN: President
with a copy to: Baker & Hostetler
National City Center Building
Cleveland, Ohio 44114
ATTN: James B. Griswold
10.9 FORCE MAJEURE. Except with respect to payment of rent, taxes,
insurance and payment of utilities, in the event that either party hereto shall
be delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrections, war or any other reason of like nature not the fault of the party
delayed in performing work or doing any act required under the terms of this
Lease, then performance of such act shall be excused for the period of the delay
and the period of the performance of any act shall be extended for a period
equivalent to the period of such delay.
-11-
<PAGE> 12
10.10 ZONING. Lessor represents that the Leased Premises are currently
zoned industrial (M-2).
10.11 PARTIES AND GENERAL MATTERS. This Lease and all the covenants,
provisions and conditions herein contained shall inure to the benefit of and be
binding upon the heirs, successors and assigns of the parties. Neuter pronouns
shall be read as masculine or feminine, and vice versa, and words in the
singular person as plural, if the nature or number of the parties require. The
word "Term" when used to refer to the period for which the Leased Premises are
let and leased, includes any period of holding over. Paragraph headings are for
conveyance only, and their presence or absence shall not be considered in the
interpretation of this Lease.
10.12 GOVERNING LAW AND VENUE. This Lease shall be construed in
accordance with the laws of the State of New York.
-12-
<PAGE> 13
IN WITNESS WHEREOF, this instrument has been executed by Lessor and
Lessee as of the day and year first above written.
Signed and Acknowledged ELM HOLDINGS INC.
in the presence of:
By:
- -------------------------------- --------------------------------
Witness Name: Name:
------------------ -----------------------
Title:
-----------------------
- --------------------------------
Witness Name:
------------------
UNIFRAX CORPORATION
By:
- -------------------------------- --------------------------------
Witness Name: Name:
------------------ -----------------------
Title:
-----------------------
- --------------------------------
Witness Name:
------------------
-13-
<PAGE> 14
STATE OF _________________)
) SS.
COUNTY OF_________________)
BEFORE ME, a Notary Public in and for said County and State, personally
appeared ELM HOLDINGS INC., by ___________________, its _______________________,
who acknowledged that s/he did sign the foregoing Lease and that the same is
his/her free act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
___ day of _____________, 1996.
---------------------------------
Notary Public
STATE OF _________________)
) SS.
COUNTY OF_________________)
BEFORE ME, a Notary Public in and for said County and State, personally
appeared UNIFRAX CORPORATION, by ______________ its ______________________ who
acknowledged that s/he did sign the foregoing Lease and that the same is his/her
free act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
____ day of ________________, 1996.
--------------------------------
Notary Public
This instrument prepared by:
-14-
<PAGE> 15
Barbara A. Rutigliano, Esq.
BP America Inc.
200 Public Square, 11-3006-W
Cleveland, Ohio 44114-2375
-15-
<PAGE> 16
LIST OF EXHIBITS
----------------
TO
--
LEASE
-----
EXHIBIT A - Legal Description
EXHIBIT B - Site Survey
EXHIBIT C - Easement Agreement dated February 4, 1993
- ---------
-16-
<PAGE> 1
Exhibit 10.13
COVENANT NOT TO COMPETE
This Covenant Not To Compete (the "Covenant") dated as of ___________,
1996 is made by and between The British Petroleum Company p.l.c., an English
company with its registered office at Britannic House, 1 Finsbury Circus, London
EC2M 7BA England ("BP"), acting for itself and jointly and severally for and on
behalf of its Affiliates (as defined below) and Unifrax Holding Co., a Delaware
company ("Buyer") with reference to the following facts:
A. BP's wholly-owned indirect subsidiaries BP America Inc., a Delaware
corporation, BP Exploration (Alaska) Inc., a Delaware corporation, and The
Standard Oil Company, an Ohio corporation, on the one hand, and Buyer, on the
other hand, have entered into a Stock Purchase Agreement as of the ___ day of
________, 1996 (the "Agreement"), with respect to the acquisition of The Unifrax
Group (as defined in the Agreement) by Buyer.
B. The Unifrax Group is engaged (i) in the manufacture and sale of
ceramic fiber products in the United States, Canada and Mexico, and (ii) in the
sale of certain ceramic fiber products outside of North America.
C. Buyer and/or its Affiliates intend to carry on the business of The
Unifrax Group.
D. The goodwill of the business of The Unifrax Group would be adversely
affected if BP or any of its Affiliates were to compete with Buyer or its
Affiliates with respect to the activities conducted by The Unifrax Group.
E. BP acknowledges that the execution and delivery of this Covenant is
a material inducement and condition precedent to the consummation of Buyer's
acquisition of The Unifrax Group.
INTENDING TO BE LEGALLY BOUND, the parties agree as follows:
<PAGE> 2
1. CERTAIN DEFINITIONS. For purposes of this Covenant, the following
terms shall have the meanings set forth below.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control of such Person.
"Person" means any corporation, partnership, joint venture,
association, trust or other legal entity but excludes natural persons.
"Ceramic Fibers Business" means any business which manufactures,
produces or sells refractory ceramic fibers or any products made of refractory
ceramic fibers.
"Territory" means the world.
2. NONCOMPETITION.
(a) With respect to all business of The Unifrax Group, BP
agrees that, for a period of five (5) years from the date hereof, BP and its
Affiliates will not, within the Territory, either directly or indirectly through
an Affiliate or otherwise, own, advise, consult, manage, operate, join, control,
be associated with, or participate in the ownership, management, operation or
control of, any business, whether in corporate, proprietorship or partnership
form or otherwise, that competes with The Unifrax Group, including, without
limitation, competition in the form of the manufacture or sale, or the grant of
a technology license for the manufacture or sale, of refractory ceramic fiber
products.
(b) BP agrees that neither it nor any of its Affiliates shall,,
directly or indirectly, either for itself or for any Person, for a period of two
(2) years from the date hereof, induce, solicit, procure, or cause or attempt to
induce, solicit, procure, or cause the hiring, employment or engagement of any
employee of The Unifrax Group, exclusive of employees who are terminated by The
Unifrax Group, without the prior written consent of Buyer.
(c) Notwithstanding anything in this SECTION 2 above to the
contrary:
(i) any member of the BP Group may consummate (by
merger, consolidation, stock purchase, asset acquisition or otherwise) an
acquisition of the
<PAGE> 3
business or assets of a Person within which is conducted a Ceramic Fibers
Business in competition with The Unifrax Group if the revenues of the competing
activities of such acquired Person comprise less than 5% of the total revenues
of such Person (the "Acquired Person") and may, subsequent to such acquisition,
continue to manufacture and sell any products which the Acquired Person was
manufacturing or selling prior to its acquisition.
(ii) BP and its Affiliates may continue to own and
operate any business (other than The Unifrax Group) they own or operate as of
the date of this Covenant, including without limitation, the Avonmouth Aerospace
Composites business of BP and may reacquire (for non-payment of amounts owed to
Affiliates of BP) the former BP Chemicals (Hitco) Inc. business now known as
Hitco Technologies Inc.
3. PAYMENT. Buyer agrees to pay BP, on behalf of itself and such
Affiliates, by direct authenticated transfer to BP's account with National City
Bank, Cleveland, ABA routing number 041000124 for credit to the account of BP's
subsidiary BP International Ltd., Account No. 2522435, the sum of [Ten Million
Dollars] (U.S. $10,000,000) on the Closing Date under this Covenant. At BP's
request, such payment will be made without any deduction or withholding for or
on account of any tax. Such payment shall be part of the "Purchase Price" under
SECTION 2 of the Agreement in partial consideration for the acquisition of The
Unifrax Group, with such payment to be allocated in accordance with ANNEX 1
attached to this Covenant.
4. REPRESENTATIONS. BP has provided Buyer with a copy of its Form 1001
(attached as ANNEX 2) relating to this Covenant. BP represents that (a) it is
fully eligible for the benefits of the "Other Income" provisions of Article 5 of
the U.S.-U.K. Income Tax Convention (the "Treaty"), with respect to any payment
described in SECTION 3 hereof and received or to be received by it in connection
with this Covenant, and (b) no such payment is attributable to a trade or
business carried on by it through a permanent establishment in the United
States, as defined in Article 5 of the Treaty. BP agrees to
<PAGE> 4
defend, indemnify and hold the Buyer and its Affiliates harmless from all costs,
penalties, expenses or withholding tax subsequently imposed as a result of the
Buyer's payments to BP under this Covenant.
5. SEVERABILITY; SEPARATE COVENANTS. This Covenant shall comply with
and its obligations shall be performed in accordance with the laws, whether
national or supranational, of all jurisdictions in which this Covenant is to be
performed (including the United States). If any provision of this Covenant shall
be invalid or unenforceable for any reason and to any extent, the remainder of
this Covenant shall not be affected thereby, but shall be reformed and enforced
to the greatest extent permitted by law.
6. GOVERNING LAW. This Covenant 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.
7. AMENDMENT. This Covenant may be modified or amended only by a
written instrument duly executed by all parties hereto.
8. WAIVER. No breach of any covenant, agreement, warranty or
representation shall be deemed waived unless expressly waived in writing by the
party who might assert such breach. No waiver of any right under this Covenant
shall operate as a continuing waiver or as a waiver of any other right or of the
same or a similar right on another occasion.
9. ENTIRE AGREEMENT. This Covenant contains the entire understanding of
the parties with respect to its subject matter, and supersedes all prior
agreements and understandings relating to the subject matter hereof.
10. HEADINGS. The headings of each section of this Covenant are for
convenience of reference only and shall not limit, control or otherwise affect
in any way the meaning of such selections.
11. COUNTERPARTS. This Covenant may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original for all
<PAGE> 5
purposes, but all such counterparts shall together constitute but one and
the same instrument.
12. ASSIGNMENT. This Covenant shall enure to the benefit of, and be
enforceable by, any "Buyer" (as defined in the Agreement), and shall be
assignable to, and shall enure to the benefit of, any third party that acquires
any business, operations, or assets from Buyer or any of its Affiliates that are
acquired under the Agreement.
13. DISPUTE RESOLUTION. All disputes, claims, questions, or
disagreement arising out of or relating to this Covenant or the breach thereof
shall be subject to Sections 14.F. and 22 of the Agreement.
<PAGE> 6
INTENDING TO BE LEGALLY BOUND, the parties to this Covenant have caused
this Covenant to be executed by their respective authorized representatives as
of the date first written above.
The Common Seal of
THE BRITISH PETROLEUM COMPANY p.l.c.
was hereto affixed in the presence of:
By: ____________________________________
Title
BUYER
By: _____________________________________
Title:
<PAGE> 7
ANNEX 1
Allocation Of Covenant Payment
PAYOR AMOUNT
Total
<PAGE> 1
EXHIBIT 10.14
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of __________________ 1996 by and among
Unifrax Corporation, a Delaware corporation (the "Company"), BP Exploration
(Alaska) Inc., a Delaware corporation ("BP"), and Unifrax Holding Co. (the
"Buyer"), a Delaware corporation. BP and Buyer are sometimes collectively
referred to herein as the "Stockholders" and each individually as a
"Stockholder."
The Company and the Stockholders desire to enter into this Agreement for
the purposes, among others, of (i) providing assurances to BP regarding Buyer's
actions as a controlling shareholder of the Company, and (ii) providing for
certain antidilution protection to BP and (iii) granting BP certain piggyback
registration rights.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions The following terms are used in this Agreement shall
have the meanings set forth below
"Affiliate" means, with respect to any Person, any Person owned or
controlled by, owning or controlling or under common ownership or control with,
a Person or any officer or director of a Person. For the avoidance of doubt,
it is acknowledged that the Company is not an Affiliate of BP.
"BP Shares" means all shares of Common Stock of the Company owned by BP
or its Affiliates.
"BP Underwriting Fees" means discounts or commissions to underwriters,
selling brokers, dealer managers or similar security industry professionals
with respect to BP Shares sold in a Public Offering.
"Common Stock" means collectively, the Common Stock of the Company.
"Effective Percentage" means the number of shares of Common Stock and
Underlying Common Stock owned by BP divided by the total number of shares of
Common Stock and Underlying Common Stock on a fully-diluted basis.
"Other Equity" means equity securities of the Company other than Common
Stock, and any options, warrants or other rights to acquire, or convertible
into or exchangeable for, Common Shares or other equity securities of the
Company.
<PAGE> 2
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Public Offering Costs" means all out-of-pocket fees and expenses
reasonably incurred by the Company in connection with a Public Offering
(including without limitation, (i) all registration and filing fees including,
without limitation, reasonable fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.,
and (B) with respect to compliance with securities Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters in connection with Blue Sky qualifications of the Registrable
Securities), (ii) reasonable printing expenses (including, without limitation,
expenses of printing certificates for the securities in a form eligible for
deposit with the Depository Trust Company and of printing and delivering
prospectuses if the printing of prospectuses is reasonably requested by the
managing underwriters), (iii) reasonable fees and disbursements of counsel for
the Company required in connection with the registration of the securities,
(iv) reasonable fees and disbursements of all independent certified public
accountants of the Company (including, without limitation, the expenses of any
"cold comfort" letters required by or incident to such performance and the
expenses of any special audit which may be required in addition to the
Company's fiscal year-end audit), (v) underwriter's reasonable fees and
expenses (excluding discounts or commissions of underwriters, selling brokers,
dealer managers or similar securities industry professionals relating to the
distribution of the securities), (vi) the fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange or trading system and rating agency fees, and (vii) reasonable fees
and expenses of all other agents retained by the Company in connection with the
offering. Public Offering Costs do not include internal time, overhead or
other non-cash expenses of the Company.
"Public Offering" means any sale of Common Stock to the public pursuant
to any offering registered under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if partnership, association or
other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall control the
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<PAGE> 3
managing director or general partner of such partnership, association or other
business entity.
"Underlying Common Stock" means the Common Stock issued or issuable
pursuant to securities containing granted options or rights to acquire any
shares of Common Stock.
2. Information.
The Company shall deliver to BP:
(i) as soon as available, but in any event within 60 days after
the end of each quarterly accounting period in each fiscal year,
unaudited consolidating (if regularly prepared) and consolidated
statements of income and cash flows of the Company and its Subsidiaries
for such quarterly period and for the period from the beginning of the
fiscal year to the end of such quarter, and consolidating (if regularly
prepared) and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period, setting forth in
each case (if regularly prepared) comparisons to the annual budget and
to the corresponding period in the preceding fiscal year, and all such
statements shall be prepared in accordance with the Company's normal
accounting principles;
(ii) within 120 days after the end of each fiscal year,
consolidating (if regularly prepared) and consolidated statements of
income and cash flows of the Company and its Subsidiaries for such
fiscal year, and consolidating (if regularly prepared) and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case (if regularly prepared)
comparisons to the annual budget and to the preceding fiscal year, all
prepared in accordance with the Company's normal accounting principles,
and accompanied by (A) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of recognized
national standing and (B) a copy of such firm's annual management letter
to the Board
(iii) no more than 60 days after the beginning of each fiscal
year, an annual budget prepared on a monthly basis for the Company and
its Subsidiaries for such fiscal year;
(iv) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and copies of all
registration statements and all regular, special or periodic reports
which it files, with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and
copies of all press releases and other statements made available
generally by the Company to the public concerning material developments
in the Company's businesses; and
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<PAGE> 4
(v) with reasonable promptness, a reasonable amount of
information as to material proposed tranactions.
3. Preemptive Rights.
(a) Grant of Rights. Except for (i) the issuance of shares of Common
Stock representing, on a fully diluted basis, not more than seven percent (7%)
of the Company's total Common Stock, pursuant to a Company Management Option
Plan, or (ii) in connection with a Public Offering, or (iii) the issuance of
Common Stock in connection with the acquisition of, or a merger with, another
corporation or business, if the Company authorizes the issuance or sale of any
shares of Common Stock or any securities containing options or rights to
acquire any shares of Common Stock (other than as a dividend on the outstanding
Common Stock), the Company shall first offer to sell to BP a portion of such
stock or securities equal to BP's Effective Percentage. BP shall be entitled
to purchase such stock or securities at the most favorable price and on the
most favorable terms as such stock or securities are to be offered to any other
Persons.
(b) Election by BP. In order to exercise its preemptive purchase
rights hereunder, BP must within thirty (30) days after receipt of written
notice from the Company describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms and BP's
percentage allotment, deliver a written notice to the Company describing its
election hereunder.
(c) Permitted Sales by Company. Upon the expiration of the offering
periods described in Section 4(b), the Company shall be entitled to sell such
stock or securities which BP has not elected to purchase during the 60 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to BP. Any stock or securities offered
or sold by the Company after such 60-day period must be reoffered to BP
pursuant to the terms of this paragraph.
4. Piggyback Registration Rights.
(a) Whenever the Company proposes to register any of its equity
securities under the Securities Act (other than under Form S-8 in connection
with employee benefit plans), the Company will give prompt written notice
("Registration Notice") to BP of its intent to effect a registration. The
Registration Notice shall describe the proposed Public Offering in reasonable
detail.
(b) Within thirty (30) days of its receipt of a Registration Notice, BP
may by written notice to the Company elect to include all of the BP Shares in
the Public Offering. BP may not elect to include less than all of the BP
Shares.
(c) If the proposed Public Offering is not completed within six (6)
months of the initial Registration Notice, a new Registration Notice must be
provided to BP pursuant to Section 4(a).
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<PAGE> 5
(d) The Company shall include in the registration all the BP Shares
which BP has elected to include pursuant to Section 4(b); provided, however,
that if the number of securities which the Company, Buyer, BP and any other
Persons wish to include a registration exceeds the number of securities which
the underwriters or other managers advise in their opinion can be sold at the
proposed Public Offering price in such Public Offering without adversely
affecting the proposed Public Offering price, the Company shall include in such
registration first all of the Common Stock the Company proposes to sell, before
including any other securities, and then second, all of the BP Shares which BP
has so requested be included, before including any other securities.
(e) Nothing in this Section 4 shall prohibit the Company from
determining at any time not to file a registration statement or, if filed, to
withdraw or terminate the registration related thereto.
(f) Any sale of the shares of Buyer to the public pursuant to any
offering registered under the Securities Act shall be treated as a Public
Offering under the provisions of this Agreement if, as of the Offering Date,
the consolidated net book value of the Company and its Subsidiaries would
constitute more than two thirds of the consolidated net book value of the Buyer
and its Subsidiaries, and the Buyer shall in such event cause the BP Shares to
be included in the Public Offering if BP so elects in accordance with Section
4(b).
5. Public Offering Expenses and Proceeds.
(a) Public Offering Costs for a Public Offering in which BP elects to
participate shall be allocated between Unifrax and BP as set forth in this
Section 5.
(b) For the purposes of this Section 5, (i) "Net BP Proceeds" means the
actual cash proceeds received by BP at the consummation of a Public Offering,
net of underwriting discounts or similar amounts, but without regard for Public
Offering Costs, (ii) "Target Value" means, subject to proration under Section
5(g), an amount to be filled in at closing representing $157 Million minus
total cash and note proceeds to the Seller Group at closing under the SPA as of
the date of this Agreement, and as of any subsequent date, an amount to be
filled in at closing representing $157 Million minus total cash and note
proceeds to the Seller Group at closing under the SPA plus fifteen percent
(15%) annual interest, compounded quarterly, and (iii) "Offering Date" means
the date a Public Offering is consummated.
(c) If a proposed Public Offering is not consummated, or if Net BP
Proceeds are less than or equal to the Target Value as of the Offering Date,
then all Public Offering Costs shall be borne by the Company.
(d) If Net BP Proceeds are greater than the Target Value, but less than
one hundred ten percent (110%) of the Target Value, as of the Offering Date,
then BP shall be
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<PAGE> 6
liable for a percentage of the Public Offering Costs equal to the percentage by
which the Net BP Proceeds exceed Target Value, but not to exceed BP's Effective
Percentage immediately prior to the Public Offering. By way of example, if Net
BP Proceeds are 105% of Target Value, BP would be liable for 5% of the Public
Offering Costs, unless its Effective Percentage was less than 5%.
(e) If Net BP Proceeds exceed one hundred ten percent (110%) of Target
Value as of the Offering Date, then BP shall be liable for a percentage of the
Public Offering Costs equal to its Effective Percentage immediately prior to
the Public Offering.
(f) BP shall be liable for a percentage of BP Underwriting Fees
calculated as follows:
(i) If a proposed Public Offering is not consummated or if BP
Net Proceeds are less than or equal to Target Value as of the Offering
Date, then BP shall pay zero percent (0%).
(ii) If BP Net Proceeds are greater than Target Value, but less
than one hundred ten percent (110%) of Target Value, as of the Offering
Date, then BP shall pay a percentage equal to ten (10) times the
percentage by which Net BP Proceeds exceed Target Value. By way of
example, if Net BP Proceeds are 105% of Target Value, BP shall pay 50%
of BP Underwriting Fees.
(iii) If BP Net Proceeds exceed one hundred ten percent (110%)
of Target Value as of the Closing Date, then BP shall pay all of the BP
Underwriting Fees.
The Company shall pay all BP Underwriting Fees for which BP is
not liable.
(g) If BP sells less than all of the BP Shares in a Public Offering,
then Target Value shall be prorated by the percentage which the BP Shares sold
in such Public Offering represent of BP Shares as of the date of this Agreement
(with adjustment for any stock splits, reverse stock splits, stock dividends or
similar events).
(h) Within thirty (30) days of the Offering Date, the Company and BP
shall meet to review the Offering Costs and BP Underwriting Fees incurred, and
the party which has paid less than its allocable share shall promptly reimburse
the other.
6. Antidilution. The Company will not authorize or issue Common Stock
or Other Equity, unless the price for and terms of such Common Stock or Other
Equity are reasonable and established on a good faith basis.
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<PAGE> 7
7. Mergers and Asset Sales.
(a) The Company shall not without the prior written consent of BP,
which shall not be unreasonably withheld, enter into any merger, consolidation
or amalgamation ("Merger") which:
(i) is not on an arms length basis, other than Mergers with
Subsidiaries of the Company (unless such Subsidiary was acquired as part
of a transaction related to such Merger); or
(ii) would result in BP receiving a different form of
consideration, or value per share of Common Stock owned, than Buyer or
Buyer's Affiliates receive per share of Common Stock;
(iii) would result in the BP Shares being converted into or
exchanged for, or BP receiving, consideration which is other than cash
or publicly traded securities, unless as a result of such Merger, at
least seventy-five percent (75%) of the total consideration received by
or held by BP is in the form of cash or publicly traded securities; or
(iv) would result in BP holding Other Equity of the Company.
(b) The Company shall not without the prior written consent of BP,
which shall not be unreasonably withheld, enter into any sale, lease or other
disposition ("Disposition"), or a series of Dispositions, aggregating more than
fifty percent (50%) of the operating assets of the Company, unless: (i) the
consideration for such Dispositions is substantially all in the form of cash,
cash equivalents or publicly traded securities, and (ii) substantially all such
cash, cash equivalents or publicly traded securities, or the cash received from
the sale or collection thereof, net of expenses and debt repayment, is to the
extent feasible and as soon as practicable distributed ratably to the Company's
stockholders; or (iii) the sale is of substantially all the assets of the
Company, at least 75% of the proceeds are in the form of cash or marketable
securities, and such proceeds are to be distributed as provided in the
foregoing subsection (ii).
8. Related Party Transactions.
(a) Except as permitted by Sections 8(b) and (c), the Company shall not
enter into, or agree to enter into, any transactions with, or make or agree to
make, any payments or transfers of assets or values to, or for the benefit of,
Buyer or Affiliates of Buyer ("Related Party Transactions") other than for (i)
goods and services obtained in the ordinary course of business at fair market
values on an arms length basis, (ii) Common Stock or Other Equity or debt sold
to Buyer or its Affiliates for cash consideration at fair market value
determined reasonably and in good faith, and subject where applicable to BP's
preemption rights under Section 3 above; (iii) the Tax Sharing Agreement
between the Buyer and the Company dated the date hereof (the form and substance
of which will
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<PAGE> 8
be reasonably acceptable to BP ); (iv) redemptions permitted under Section
9(ii); or (v) a structuring fee in the amount of 1% of the purchase price (such
fees not to exceed $200,000 in any calendar year) of the acquisition of stock or
assets of the business of any third party. For the avoidance of doubt, cash
dividends declared and paid ratably to all holders of Common Stock are not
considered to be Related Party Transactions.
(b) The Company shall make the payments of closing expenses
contemplated by, and in accordance with the provisions of, Section 10 of the
Recapitalization Agreement (the "SPA") effective as of June 9, 1996 among
Buyer, Unifrax Investment Corp., BP, BP America Inc., The Standard Oil Company,
and the Company. The Company may further assume all of Buyer's obligations
under the SPA, in accordance with Section 14.K thereof. Such payments and
assumption are not deemed to be Related Party Transactions, and are hereby
consented to by BP.
(c) The Company shall be entitled to make payments to Buyer and its
Affiliates, including payments under the Advisory Services Agreement dated as
of the date of this Agreement, provided, however, that aggregate payments or
transfers by the Company to Buyer and its Affiliates (other than payments and
transfers permitted pursuant to Sections 8(a)(ii), (iii), (iv) and (v)) shall
in no event exceed Five Hundred Thousand Dollars ($500,000) in any calendar
year.
9. Redemption, Dividends and Distributions. The Company shall not
without the prior written consent of BP redeem any Common Stock or Other
Equity, unless such redemption
(i) applies only to Common Stock, and ratably to the BP Shares
as a percentage of all Common Stock outstanding; or
(ii) is of Common Stock or Other Equity held directly or
indirectly by individuals within the management group.
10. Legend. Each certificate evidencing Common Stock and each
certificate issued in exchange for or upon the transfer of any Common Stock
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"The securities represented by this certificate are subject to a
Stockholders Agreement dated as of _____________, 1996, among the
issuer of such securities (the "Company") and all of the
Company's stockholders. A copy of such Stockholders Agreement
will be furnished without charge by the Company to the holder
hereof upon written request."
The Company represents and warrants that it has imprinted such legend on
certificates evidencing Common Stock outstanding to the date hereof.
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<PAGE> 9
11. Buyer. Buyer shall use its best efforts to cause the Company to
comply with the obligations of the Company under this Agreement. Buyer in its
capacity as a controlling shareholder of the Company shall not act in bad faith
towards BP in its role as a minority shareholder.
12. Transfer. Prior to transferring any Common Stock (other than in a
Public Offering) to any Person, the transferring Stockholder shall cause the
prospective transferee to execute and deliver to the Company and the other
Stockholders a counterpart of this Agreement.
13. Buyer's Right of First Refusal.
(a) In the event that BP (or any Affiliate of BP) intends to sell,
assign or otherwise transfer, other than pursuant to a Public Offering),
("Transfer") any BP Shares to any Person other than to BP or an Affiliate of
BP, it shall first provide the Company with written notice (a "Transfer
Notice") describing in reasonable detail the price and terms of the proposed
Transfer, and the BP Shares being offered (the "Offered BP Shares").
(b) Buyer may at any time within the thirty (30) days following receipt
of a Transfer Notice (the "Offer Period") notify BP or the relevant BP
Affiliate that Buyer wishes to purchase all of the Offered Shares upon the
terms set forth in the Transfer Notice. Buyer may not elect to purchase less
than all of the Offered BP Shares. In the event Buyer so elects to purchase
all of the Offered BP Shares, then Buyer and BP or the relevant BP Affiliate
shall close the purchase and sale of the Offered BP Shares upon the terms and
at the price set forth in the Transfer Notice as soon as reasonably possible
after Buyer's notice of its election to purchase. Buyer may assign its right
to purchase the Offered Shares to a third party.
(c) In the event that Buyer does not so elect to purchase the Offered
BP Shares, then BP or the relevant BP Affiliate may transfer the Offered BP
Shares upon the terms set forth in the Transfer Notice at any time during the
ninety (90) days following the expiration of the Offer Period. If the Transfer
does not close within such ninety (90) day period, then a new Transfer Notice
must be sent, and a new Offer Period shall then commence.
(d) This Section 13 shall automatically terminate two (2) years after
the date of this Agreement, and shall be of no further effect.
14. Tag-Along/Drag-Along Rights.
(a) Tag-Along Rights. In the event of a proposed Transfer of Common
Stock by Buyer or any Buyer Affiliate (other than to an Affiliate of Buyer),
the Transferring Stockholder shall deliver a written notice (the "Sale Notice")
to BP, specifying in reasonable detail the identity of the proposed
transferee(s) and the terms and conditions of the Transfer. BP may elect to
participate in the contemplated Transfer by delivering
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<PAGE> 10
written notice to the Transferring Stockholder within 15 days after receipt by
BP of the Sale Notice. If BP elects to participate in such Transfer, BP will
be entitled to sell in the contemplated Transfer, at the same price and on the
same terms as the Transferring Stockholder, a percentage of the Common Stock to
be sold in the contemplated Transfer equal to the percentage of the Common
Stock then outstanding which are BP Shares.
Buyer shall use its best efforts to obtain the agreement of the
prospective transferee(s) to the participation of BP in any contemplated
Transfer, to the extent BP elects to participate in the manner set forth above,
and Buyer and its Affiliates shall not Transfer any of its or their Shares to
the prospective transferee(s) if the prospective transferee(s) declines to
allow such participation of BP.
(b) (i) In the event of a proposed sale for cash or marketable
securities of Common Stock by Buyer to a transferee which is not an Affiliate
of Buyer, Buyer shall be entitled to require BP to participate in the proposed
Transfer in accordance with the terms of this Section 14(b). Buyer shall, if
it so elects, send BP a Sale Notice at least 30, but not more than 90, days
before the closing of such Transfer. BP Shares shall be included in such sale
in an amount equal to the product of (1) the number of BP Shares times (2) the
ratio of the shares of Common Stock proposed to be sold by Buyer and its
Affiliates to the total shares of Common Stock owned by Buyer and its
Affiliates.
(ii) The BP Shares shall be sold on the same terms and
conditions as the Common Stock being sold by Buyer and its Affiliates, except
that BP and its Affiliates shall not be required to make, or assume any
liability for, any representations, warranties as to the Company or the sale or
otherwise, except with respect to title to the BP Shares, due authorization and
execution of the Agreement, and similar matters.
(iii) Buyer may not require the sale of BP Shares under this
Section 14(b) unless at least seventy-five percent (75%) of the consideration
to be received therefore is other than cash or marketable securities.
15. Transfers in Violation of Agreement. Any actual or attempted sale,
transfer, assignment, pledge or other encumbrance or disposition of any Common
Stock in violation of any provision of this Agreement shall be void, and the
Company shall not record such transfer on its books or treat any purported
transferee of such Stockholder Shares as the owner of such shares for any
purpose. Any transferree, other than of BP Shares, shall be deemed to be
included within the definition of "Buyer" under this Agreement.
16. Termination.
(a) This Agreement shall terminate at such time that BP's Effective
Percentage is less than one percent (1%), unless the Effective Percentage was
reduced below 1% as a result of Buyer's or the Company's breach of this
Agreement.
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(b) After consummation of a Public Offering of the Company's Common
Stock, Sections 2, 3, 6, 7, 8, 9, 10, 11, 13 and 14 of this Agreement shall
terminate and be of no further effect.
17. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or any of the Stockholders unless such
modification, amendment or waiver is approved in writing by the Company and
such Stockholders. The failure of any party to enforce any of the provisions
of this Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
18. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
19. Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
20. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Common Shares and the respective successors and assigns of each of
them, so long as they hold Common Shares. If BP transfers its Common Stock to
a Person which is not an Affiliate of BP, effective as of the date of such
transfer, Section 5 of this Agreement shall be automatically deleted and of no
further effect.
21. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
22. Remedies. BP shall be entitled to enforce its rights under this
Agreement specifically to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
BP may apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a
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bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
23. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the notice addresses set forth below or at such address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, three days after deposit in the U.S. mail
and one day after deposit with a reputable overnight courier service.
BP: BP Exploration (Alaska) Inc. Buyer: Unifrax Holding Co.
Attn.: Corporate Secretary 2550 SOM Center Road
200 Public Square Suite 105
(11th Floor) Willoughby Hills, OH 44094
Cleveland, OH 44114
Company: Unifrax Corporation
c/o Unifrax Holding Co.
2550 SOM Center Road
Suite 105
Willoughby Hills, OH 44094
24. Governing Law. The corporate law of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of
this Agreement shall be governed by the internal law, and not the law of
conflicts, of Ohio.
25. Arbitration. The parties agree to use their best efforts to settle
any disputes pertaining to the validity, scope, performance and/or enforcement
of this Agreement. To this end, the parties agree to consult and negotiate with
each other in good faith and, recognizing their mutual interests, attempt to
reach a just and equitable resolution satisfactory to both parties. If the
parties cannot reach a resolution of the dispute within thirty (30) days,
either party may refer the dispute to arbitration as set forth hereafter.
All disputes between the parties hereto, pertaining to the
validity, scope, performance and/or enforcement of this Agreement, shall be
finally settled by a single arbitrator, who shall be a member of the Bar of the
State of Ohio, actively engaged in the practice of law, or a retired member of
the Ohio or federal judiciary, pursuant to the then-applicable commercial
arbitration rules of the Center For Public Resources Rules for arbitration of
business disputes. The arbitration proceeding shall be held in Cleveland,
Ohio, at such place as is selected by the Arbitrator. The Arbitrator shall not
have the authority to award any remedy or relief that a court in the State of
Ohio could not order or grant. Judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof. By
execution and delivery of this Agreement, the parties
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hereby irrevocably accept for themselves and as to their respective property,
generally and unconditionally, the jurisdiction of the arbitrator described
herein.
26. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
INTENDING TO BE LEGALLY BOUND, the parties hereto have executed this
Agreement on the day and year first above written.
BP EXPLORATION (ALASKA) INC. UNIFRAX HOLDING CO.
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
UNIFRAX CORPORATION
By:
------------------------------
Title:
---------------------------
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EXHIBIT 10.17
This Subordinated Promissory Note has not been registered under the Securities
Act of 1933. It may not be sold, assigned, transferred, pledged or otherwise
disposed of unless it is registered under the Securities Act of 1933, or unless
an exemption from such registration is available.
SUBORDINATED PROMISSORY NOTE
UNIFRAX CORPORATION
$7,000,000.00 __________________, 1996
For value received, Unifrax Corporation, a Delaware corporation (the
"Maker"), promises to pay to BP Exploration (Alaska) Inc., a Delaware
corporation (the "Payee") at its principal place of business at 200 Public
Square, Cleveland, Ohio 44114-2375, or at such other place as the holder of
this Note may from time to time direct, on or before the Maturity Date (as
hereinafter defined), and on the terms and conditions set forth below, the
principal sum of SEVEN MILLION DOLLARS ($7,000,000.00) with simple interest
thereon after and including the date hereof at the Prevailing Prime Rate (as
hereinafter defined). Interest shall be payable on the first, second and third
anniversary of the date of this Note. Subject to the subordination provisions
of this Note, said principal and all interest then accrued thereon but unpaid
shall be due and payable on the "Maturity Date," which shall be ___________,
1999 [Third Anniversary of Note]. Terms used herein but not defined herein
shall have the meanings ascribed thereto in the Stock Purchase Agreement
between Maker and Payee dated _________, 1996 (the "Stock Purchase Agreement").
This Note shall bear interest on the unpaid principal balance hereof
from time to time outstanding at a rate equal to the Prevailing Prime Rate.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. "Prevailing Prime Rate" shall mean the per annum
interest rate announced from time to time as the "prime," "base" or "reference"
rate by [name of bank], whether or not that rate is the lowest interest rate
charged by the foregoing bank. The term "prime," "base" or "reference" rate
shall include the rate so established by the foregoing bank from time to time
even though the label may be changed or discontinued. If the Prevailing Prime
Rate, as defined, is unavailable, "Prevailing Prime Rate" shall mean the
highest of the prime rates published in the WALL STREET JOURNAL on the first
business day of the month, as the base rate on corporate loans at large U.S.
money center commercial banks. The interest rate applicable to this Note shall
be adjusted monthly as of the first day of each month, and the interest to be
charged for that month shall be based on the Prevailing Prime Rate in effect on
the first business day of such month.
At any time and from time to time, Maker shall be entitled to prepay
this Note without premium or penalty.
Payment of this Note shall be made in lawful money of the United
States of America. If a payment hereunder becomes due on a Saturday, Sunday or
legal holiday, the due date thereof shall be extended to the next succeeding
business day.
This Note is the Subordinated Promissory Note of Maker issued pursuant
to the Stock Purchase Agreement and is subject to the terms and conditions
thereof.
<PAGE> 2
This Note will be subordinated pursuant to the Subordination
Agreement, by and among, Payee, Maker and PNC Bank, as trustee, dated as of
September __, 1996 (the "Subordination Agreement").
Maker agrees to pay all cost and expenses (including without
limitation reasonable attorney's fees) incurred by Payee in connection with its
enforcement. Maker hereby further waives presentment, demand for payment,
notice of dishonor, notice of nonpayment, protest, notice of protest, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default, or enforcement of this Note, and Maker hereby waives the
benefits of any statute of limitations with respect to any action to enforce,
or otherwise related to this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of Ohio.
Unifrax Corporation
By
------------------------------
Its:
--------------------------
<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. 1 to
the Registration Statement (Form S-1 No. 333-10611) and related Prospectus of
Unifrax Investment Corp. dated September 26, 1996.
/s/ ERNST & YOUNG LLP
Buffalo, New York
September 26, 1996
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