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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR COMMISSION FILE NUMBER:
ENDED: 333-14913-01
MARCH 31, 1997
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ASTOR HOLDINGS II, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 25-1766332
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification
organization) Number)
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8521 SIX FORKS ROAD
SUITE 105
RALEIGH, NORTH CAROLINA 27615
(919) 846-8011
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/.
No voting stock of the registrant is held by non-affiliates.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 31, 1997 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
THROUGHOUT THIS ANNUAL REPORT, EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES,
"ASTOR HOLDINGS II" REFERS TO ASTOR HOLDINGS II, INC., THE "COMPANY" REFERS
COLLECTIVELY TO ASTOR HOLDINGS II AND ITS DIRECT AND INDIRECT SUBSIDIARIES, AND
THE "PARENT" REFERS TO ASTOR HOLDINGS, INC., THE SOLE STOCKHOLDER OF ASTOR
HOLDINGS II. REFERENCES HEREIN TO A PARTICULAR FISCAL YEAR ARE TO THE TWELVE
MONTH PERIOD ENDING MARCH 31 OF SUCH YEAR. PRO FORMA INFORMATION INCLUDED IN
THIS ANNUAL REPORT GIVES EFFECT TO THE ADCO ACQUISITION (AS DEFINED BELOW) AS IF
IT HAD OCCURRED ON APRIL 1, 1996.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS ANNUAL REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTY, INCLUDING BUT NOT LIMITED TO ECONOMIC, COMPETITIVE, GOVERNMENTAL
AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES, AND PRICES.
INTRODUCTION
The Company is a leading global developer, producer and marketer of a wide
variety of value-added specialty chemical products. Its principal products are
(i) a broad range of specialty waxes, which represented approximately 69% of pro
forma sales for the 1997 fiscal year, and (ii) an extensive line of
technologically advanced adhesives and sealants, which represented approximately
31% of pro forma sales for the 1997 fiscal year.
In June 1995, Astor Holdings II was incorporated in Delaware, and the
current business and structure of the Company were created through the
combination of (i) Astor Corporation, a direct, wholly owned subsidiary of Astor
Holdings II and (ii) Associated British Industries Limited ("ABI"), a
manufacturer of specialty waxes and adhesives and sealants based in the U.K.
The principal executive offices of the Company are located at 8521 Six Forks
Road, Raleigh, North Carolina 27615, and the Company's telephone number is (919)
846-8011. Astor and PurFlex are registered trademarks of the Company.
RECENT DEVELOPMENTS
In October 1996 the Company acquired all the outstanding capital stock and
all the issued but unexercised options of ADCO Technologies Inc. ("ADCO"), a
publicly traded Nasdaq National Market manufacturer and marketer of adhesives
and sealants, for an aggregate consideration of $54.4 million (the "ADCO
Acquisition"). Through the acquisition of ADCO, the Company added significant
depth to its product lines, global marketing and manufacturing networks and
product development capabilities. Management believes that these strengths have
enabled the Company to improve significantly the penetration of its existing
adhesives and sealants in the United States and have provided the Company the
opportunity to market ADCO's products outside the United States. The Company
financed the ADCO Acquisition through the issuance (the "Note Offering") by
Astor Corporation of $110,000,000 in aggregate principal amount of senior
subordinated notes due 2006 (the "Senior Subordinated Notes"), which have been
fully and unconditionally guaranteed by Astor Holdings II.
In April 1997 the Company acquired Rheochem, Incorporated, whose sole asset
was the 50% equity interest in the Rheochem Technologies, Inc. joint venture
("Rheochem") not already owned by the Company. Rheochem, which is based in
Columbia, Missouri and is now a division of Astor Corporation, develops,
manufactures and sells a range of polyvinyl chloride ("PVC") lubricant products.
Rheochem has developed advanced wax-based lubricants which improve processing of
PVC siding and pipes and has allowed the Company to gain a large share of what
the Company believes to be an expanding PVC lubricant market.
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COMPETITIVE STRENGTHS. The Company believes that it benefits from the
following competitive strengths:
DIVERSE GLOBAL END-USE MARKETS AND PRODUCTS. The Company serves numerous
end-use markets with over 4,650 products. This wide variety of products is sold
to a diverse global base of over 4,000 customers. In the 1997 fiscal year, no
single customer of the Company accounted for more than 5% of the Company's pro
forma sales, and the top ten customers accounted for approximately 23% of the
Company's pro forma sales. This diversity of products, markets and customers
minimizes the Company's exposure to any particular customer, economic cycle or
geographic market and provides a broad base from which to grow sales through
continued development of core technologies and new applications.
LEADING MARKET POSITIONS. The Company enjoys substantial market shares in
many niche markets because of its product design capabilities, reputation,
quality and service. In addition, the names-- AstorStag, Astor Wax, Rheochem and
ADCO--are established and trusted in their respective industries and provide
brand name recognition for the introduction and development of new products and
markets.
GLOBAL MARKETING AND MANUFACTURING CAPABILITIES. The Company sells its
products in over 50 countries worldwide through a global marketing network and
maintains manufacturing facilities in the United States, the U.K. and Belgium.
In fiscal 1997, the Company's sales of specialty waxes and adhesives and
sealants outside of the United States, on a pro forma basis, totaled $75.2
million, or 33% of total sales. The Company's international marketing and
manufacturing capabilities provide a platform for the introduction of existing
and new products throughout the world and allow the Company to better serve its
customers' needs on a worldwide basis.
CUSTOMER-DRIVEN PRODUCT DEVELOPMENT. The Company focuses on developing
value-added products with its customers by utilizing its extensive product
development expertise and manufacturing process capabilities. The Company's
sales, technical service and development staff work with customers to identify
specific needs and develop innovative, superior performance solutions.
Additionally, many of the Company's products are sold to customers following an
often rigorous technical approval process. The Company has obtained numerous
valuable customer approvals which it believes provide it with a competitive
advantage.
LOW-FIXED COST AND FLEXIBLE MANUFACTURING CAPABILITIES. The Company has
engineered its manufacturing facilities to be capable of producing batches of
specialty products on an as needed basis with a minimum of fixed costs which
were approximately 20% of total pro forma costs in the 1997 fiscal year. This
just-in-time focus and relatively low fixed-cost structure enables the Company
to respond rapidly to changing customer specifications and reduces the impact on
profitability during periods of decreased customer demand.
EXPERIENCED MANAGEMENT TEAM. Since 1994, the Company's management team has
substantially improved operating efficiencies and achieved significant cost
savings. Additional efficiencies and savings were achieved by the Company
following the acquisition of ABI in June 1995. The acquisitions of ADCO and the
remaining joint venture interest in Rheochem further enhance managerial
expertise with the addition of several new senior managers. The resulting
management team has extensive wax and specialty chemical industry experience.
The Company currently has employment agreements with each of its five top
executives.
BUSINESS STRATEGY. The Company's business strategy includes the following
key elements:
FOCUS ON DIVERSE, HIGH-MARGIN NICHE MARKETS. The Company intends to
continue to aggressively expand its diverse line of high-margin products for
niche markets. New product development will be achieved through customer
solution engineering and the extension of existing technologies to new
applications. The Company believes that increasing the breadth and diversity of
its product offerings will further reduce the Company's already limited exposure
to fluctuations in any single market.
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CONTINUE CUSTOMER-DRIVEN PRODUCT DEVELOPMENT. The Company intends to
continue its strong commitment to applied research and product development. The
Company's focus on solutions for the customer fosters a collaborative effort
between its experienced technical and sales personnel and its customers. This
product development effort serves to enhance customer loyalty and is the genesis
for many new products.
FURTHER GLOBAL EXPANSION. The Company intends to continue to grow in new
geographic markets by selling existing and new products to its current global
customers as they move manufacturing capacity to new geographic regions. Once
established in a new region, the Company intends to open sales offices and
develop marketing alliances to target new customers. Through the combination of
ADCO's product line and the Company's global distribution network, the Company
will have the ability to further develop global adhesives and sealants market
opportunities. Additionally, the strong product development, manufacturing and
distribution base of ADCO in the United States will enable the Company to more
aggressively introduce and market its adhesives and sealants in the United
States.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to selectively pursue
complementary acquisitions which can be integrated into the Company's existing
businesses. As a result of global consolidation trends and the fragmented nature
of the specialty wax and adhesives and sealants industries, management believes
many opportunities exist for the Company to make strategic acquisitions. The
Company intends to pursue acquisitions which will diversify its product lines,
enhance its product development capabilities, improve its global marketing reach
and lower its costs.
BUSINESS SEGMENTS
Through the successful execution of its business strategy, the Company has
become a leader in two distinct segments of the specialty chemical
industry--specialty waxes and adhesives and sealants. The business segment
information contained in Note 18 to the Company's Consolidated Financial
Statements included elsewhere in this annual report is incorporated herein by
reference.
SPECIALTY WAXES
Wax plays a critical role as both a primary element and as an additive in
many different product applications. Specialty waxes, like the Company's
products, are distinguished by their melt point, hardness, color and other
performance characteristics, as well as their consistent qualities and custom
specifications, and are used as an essential, value-added component in hundreds
of products and applications. In most cases, wax represents a small portion of
the total cost of production, but is a critical component of the end-use
product.
Wax is primarily derived as a by-product of the petroleum refining process
and typically represents less than 1% of the volume of a standard barrel of
petroleum. Wax industry suppliers include large petroleum refiners and wax
specialists.
Petroleum refiners are typically volume-driven bulk suppliers providing
little product specialization or service, in part because they view wax as a
by-product of their refining operations. Typically, wax sales by these refiners
represent less than 1% of their revenues, and thus wax production receives
little strategic or capital commitment. The characteristics of the waxes
resulting from production by large refiners are often inconsistent because of
alterations made in the refining process to emphasize production of other
products. As a result, waxes produced by petroleum refiners are typically
commodity in nature and customers tend to be volume buyers requiring little or
no customization or servicing.
Wax specialists, like the Company, focus on customer service. Such services
include development assistance, product customization, specification and supply
consistency, custom packaging and order-size flexibility. Wax specialists target
niche applications and customers demanding these value-added services. As a
result, wax specialists develop significant customer relationships and numerous
product formulations.
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ADHESIVES AND SEALANTS
Adhesives and sealants are utilized in a multitude of applications within
many industrial and consumer products. Adhesives and sealants are critical to
the performance of an end-use product, but typically represent a small portion
of total product cost. Adhesives are used to bond various materials under
numerous temperature and moisture conditions, and sealants are used to prevent
the passage of air, water and noise between two surfaces. Certain applications
require little customer service or specialization; these adhesives and sealants
have commodity characteristics and are sold either directly to customers or
through distributors. However, many suppliers, like the Company, develop
expertise within specialized niches. Owing to the unique technical requirements
within these niches, even a small supplier to the industry can be a leader for
certain applications. These suppliers tend to be service-oriented with
significant focus on technical development. As a result, they target customers
requiring customized products, strict quality control and technical support.
This value-added service can generate significant goodwill and strong customer
relationships.
PRODUCTS AND MARKETS
The Company offers a complete line of specialty waxes and an extensive line
of adhesives and sealants. The Company markets its products in over 50 countries
worldwide through its direct sales force and global network of agents. During
the 1997 fiscal year, the Company's pro forma revenue was geographically
diversified; 67% in the United States, 21% in Europe, and 12% in all other
regions. The information by geographic area contained in Note 18 to the
Company's Consolidated Financial Statements included elsewhere in this annual
report is incorporated herein by reference. The following table summarizes the
Company's 1997 fiscal year pro forma sales by product and market:
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1997 PRO FORMA SALES
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% OF
U.S. NON-U.S. TOTAL SALES
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(DOLLARS IN MILLIONS)
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SPECIALTY WAXES:
Consumer/Industrial Products................................................ $ 29.1 $ 19.4 $ 48.5 21%
Candle...................................................................... 24.6 3.4 28.0 12%
Tire/Rubber................................................................. 14.1 10.0 24.1 11%
Packaging................................................................... 12.0 11.7 23.7 10%
Synthetic Fireplace Logs.................................................... 11.2 1.7 12.9 6%
PVC Lubricants.............................................................. 6.7 0.6 7.3 3%
Cable Fill.................................................................. 0.6 4.7 5.3 2%
Anticorrosives.............................................................. 0.0 3.8 3.8 2%
Road Surfacing.............................................................. 0.0 2.9 2.9 1%
Other....................................................................... 0.9 0.0 0.9 0%
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Specialty Waxes Total..................................................... $ 99.2 $ 58.2 $ 157.4 69%
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% OF
U.S. NON-U.S. TOTAL SALES
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(DOLLARS IN MILLIONS)
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ADHESIVES AND SEALANTS:
Roofing................................................................... $ 23.5 $ 1.1 $ 24.6 11%
Transportation Aftermarket................................................ 7.8 2.1 9.9 4%
Transportation OEM........................................................ 7.5 1.9 9.4 4%
Window Manufacturing...................................................... 7.2 0.4 7.6 3%
Concrete Pipe & Vault..................................................... 5.3 0.5 5.8 3%
Building Construction..................................................... 0.0 5.3 5.3 2%
Other Industrial.......................................................... 1.7 5.7 7.4 3%
Discounts and Returns..................................................... (0.9) (0.1) (1.0) 0%
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Adhesives and Sealants Total............................................ $ 52.1 $ 17.0 $ 69.1 31%
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Total................................................................... $ 151.3 $ 75.2 $ 226.5 100%
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SPECIALTY WAXES
The Company's proprietary specialty waxes are generally sold to customers
demanding unique performance characteristics. A vast number of formulations are
possible depending on the customer's requirements for melting point, color,
hardness, viscosity and many other performance characteristics. The Company's
major markets and products are described below.
CONSUMER/INDUSTRIAL PRODUCTS. The Company produces specific wax
formulations for hundreds of applications requiring exacting specifications,
such as: cheese wax coatings, hot-melt wax used for bonding materials, chewing
gum base, petroleum based jellies for pharmaceuticals and cosmetics, thermostat
waxes, dental floss, stains and textile production applications, printing inks,
and crayons. These products generally serve value-added niches which require a
high degree of customer reliance on product quality. Many of these products also
meet the specifications of the United States Food and Drug Administration
("FDA"). The Company is diversified globally in this product category with
approximately 40% of its fiscal 1997 sales of these products made outside of the
United States.
CANDLES. The Company is a significant supplier of wax to the candle
industry in the United States. Waxes are the primary fuel source in candles and
are used to influence a candle's color, drip rate, smoke characteristics, burn
time and other performance characteristics. The Company is a high-end leader in
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specialty formulations to specialty, value-added candle manufacturers. United
States wax consumption for candles accounts for approximately 12% of the total
United States wax market, and the Company has aggressively increased its
position in the United States market over the last three years.
TIRE/RUBBER. The Company's waxes are used in rubber products to prevent
aging and cracking resulting from exposure to ozone in the atmosphere. The
Company's most significant customers are tire manufacturers who demand highly
specialized wax formulations to meet their rigid and exacting requirements.
Although the cost of wax is typically less than 5% of a tire's cost, its
specific chemical characteristics are integral and critical to the tire's
overall performance. As a result, the Company has maintained long established
relationships and acts as a product development partner with various tire
producers. The Company is a leading global supplier in this market category, and
the Company's sales in this product category are geographically diversified,
with approximately 41% of its fiscal 1997 sales of these products outside of the
United States.
PACKAGING. The Company's products are used by packaging manufacturers in
the production of flexible packages, folding cartons and various foil, cardboard
and paper related packages. Such products provide barrier characteristics, scuff
protection and flexibility. These packaging applications are often used for food
products, and are therefore produced by the Company to meet FDA, as well as U.K.
and European, food and quality standards. The Company is a significant packaging
wax provider, based on sales, maintaining strong customer relationships based
upon specific product design. In addition, the Company is diversified globally
in this product category with almost 49% of its fiscal 1997 sales of these
products outside of the United States.
SYNTHETIC FIREPLACE LOGS. The Company's waxes are used as a major component
in the production of synthetic fireplace logs and are used both as a binder for
the log and as a fuel source. Wax formulations specifically affect the burning
characteristics such as color, height and duration of the firelog flame. The
Company is a leading supplier in North America to synthetic fireplace log
manufacturers.
PVC LUBRICANTS. Through its Rheochem Technologies Division, the Company
manufactures a range of PVC wax lubricants and has a leading supply position in
the United States. Paraffin and hydrocarbon waxes are the most cost effective
and efficient primary lubricants used in rigid PVC and are widely used in PVC
pipe, vinyl siding, profiler and injection molding compounds. Wax lubricants
provide the fusion, flow and metal release characteristics required in most
rigid PVC applications.
CABLE FILL. The Company's cable fills are used as a critical component in
the production of telephone cables and other fiber optic cables to provide
barrier and integrity protection for cable filament over a wide temperature
range. The Company has been active in the evolution from traditional petroleum
jelly-based fills for copper cables to more sophisticated gels used with fiber
optics. The Company's cable fill business has been cultivated through attention
to customer service and technical precision. Approximately 89% of the Company's
fiscal 1997 sales of cable fills was sold outside of the United States.
ANTICORROSIVES. The Company's anticorrosives are used in automotive,
aerospace and engineering applications as corrosion inhibitors, sealers and
water barrier protectives due to their excellent film forming properties.
Significant anticorrosive approvals have been obtained from several automotive
producers in Europe and emerging countries. The Company has 100% of the
anticorrosive business of one major automobile producer in the U.K., to which
one Company employee is fully dedicated and on-site at the customer's facility.
ROAD SURFACING. The Company's road surfacing products are used as both a
surface dressing and as a binder for the aggregate used and are sold primarily
to municipalities for road surfacing in the U.K. and in selected parts of
Europe. These products are produced in the Company's facility in the U.K. and
are sold to roadway contractors. The Company's position has been stable in the
U.K. marketplace and opportunities are available to license road surfacing
technology to global partners.
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OTHER. The Company also sells small quantities of lube base oil, which is
derived as an upgraded byproduct from its wax manufacturing process.
ADHESIVES AND SEALANTS
The Company manufactures a growing line of adhesives and sealants which are
manufactured in various forms, including: hot-melts, pumpables and extruded tape
products. The Company concentrates its efforts on specialized applications in
which performance criteria are more demanding and in which greater added value
can be offered. The Company's primary products and markets are described below.
ROOFING. The Company supplies a number of products, including laminates,
butyl adhesives and sealants and primers to improve the installation and
retrofit of single-ply roofing systems in the new and rehab commercial building
industry. The Company has pioneered more efficient, faster curing seam tapes
and, by moving away from solvent-based traditional adhesives, the Company has
achieved a favored market position. The Company is a market leader in the United
States and its customers include all of the largest single-ply roofing system
suppliers. In addition, the Company has licensed certain of its technology
related to selected roofing products to Firestone. The market for the Company's
line of high-margin roofing products has grown steadily in the United States in
recent years, particularly with the introduction of specialty laminates designed
to fit over difficult to cover areas.
TRANSPORTATION AFTERMARKET. The Company manufactures urethane sealants and
butyl tapes which are used to install and replace windshield glass in
automobiles in the United States and used for vehicle crash repair outside the
United States. These products provide fast cure bonding in the installation of
replacement windshields in vehicles with airbags, which is required to ensure
structural integrity of the windshield in the event of an accident. The Company
believes it is well positioned to take advantage of this market shift to
urethane, which is stronger and cures faster than traditional bonding materials.
Other polyurethanes have been introduced for the adhesion of body parts.
TRANSPORTATION OEM. The Company's products include: hot melt sealants,
acrylics, extrudable compounds, butyl tapes and polyurethanes. These products
are used by automobile, recreational vehicle and trailer manufacturers to reduce
the passage of unwanted air, moisture and noise between two surfaces and to
attach product components. Specialty adhesives are increasingly being used as a
substitute for mechanical fasteners to improve performance and reduce costs. The
Company's products are highly regarded by major automobile manufacturers and
often are the product of choice.
WINDOW MANUFACTURING. The Company produces hot melt adhesives and sealants,
pressure sensitive tapes and liquid butyl pumpables for the manufacture of
insulated glass windows. These products provide both adhesion and sealing
properties between the window glass and the window frame, and act as a moisture
barrier between two panes of glass. The Company is well positioned as the window
manufacturing market in the United States trends toward achieving greater energy
efficiency for both the new and retrofit market.
CONCRETE PIPE AND VAULT. The Company offers a line of construction-related
products serving various industrial markets, including the concrete pipe and the
concrete burial vault markets. The Company's products in these markets include
large cross-sectional flexible tape sealants designed to form a gasket-type seal
when compressed between two concrete surfaces. The Company maintains a leading
market position for sales of adhesives and sealants to the concrete vault
industry in the United States.
BUILDING CONSTRUCTION. The Company produces a variety of adhesives and
sealants used for both new and rehab building construction. The Company's
products in this area are used to seal joints in structures, and are used to
provide waterproofing and corrosion resistance to floors, doors, windows, car
decks, bridges and commercial buildings. The Company's line of products are sold
exclusively in Europe at this time.
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OTHER INDUSTRIAL. In Europe, the Company produces sealants for the gas,
water and engineering industries, as well as resin compounds for mold making,
casting, adhesives, and general industrial applications. In the United States,
the Company performs toll processing of intermediate raw materials for third
parties, particularly the processing of butyl solutions.
APPLIED RESEARCH AND PRODUCT DEVELOPMENT
The Company maintains a strong commitment to applied research and product
development, focusing its efforts on enhancing existing product lines as well as
developing new products based on the Company's existing technologies and
production capabilities. The Company's applied research and product development
staff works together with the Company's sales staff and customers to identify
specific needs and develop innovative, superior performance solutions which
satisfy those needs. This method of product development allows the customer to
become a member of the development team, develops close ongoing working
relationships between the Company and its customers and, in many instances,
permits the Company to gain an in-depth understanding of its customers'
businesses, enabling it to better anticipate and serve its customers' needs.
Advancements resulting from this process can often be profitably applied to
other high-margin niche markets.
The Company employs a research and development staff of 39 experienced
chemists and laboratory technicians. The Company expended $2.3 million, $2.5
million and $2.8 million on a pro forma basis in the 1995, 1996 and 1997 fiscal
years, respectively, in these efforts.
SALES AND MARKETING
The Company maintains an extensive global marketing network that includes a
direct sales force and relationships with independent sales representatives,
distributors and resellers. The Company has 84 technical sales and marketing
personnel who work in coordination with the Company's product development and
technical personnel to service the Company's customers. Members of the Company's
sales force typically have a chemistry background and extensive industry
experience and work directly with customers' technical personnel. The Company
extends its global marketing reach through a geographical network of over 40
local agents who specialize in a particular market.
The Company has over 3,000 wax product customers, of which the ten largest
customers in the 1997 fiscal year accounted for approximately 18% of total pro
forma sales. The Company has over 1,000 adhesives and sealants product
customers, of which the ten largest customers accounted for approximately 13% of
total pro forma sales in the 1997 fiscal year. The Company anticipates that over
time sales to its larger adhesives and sealants customers will become a smaller
percentage of its total sales.
The Company sells many of its products to customers pursuant to a technical
approval process, and over the past several years the Company has developed
numerous valuable customer approvals. The approval process ranges from a
relatively simple process of sample evaluation and product quality review
procedures to a more complicated process of matching a specific molecular
structure to a customer's applications. Oftentimes, approvals require long lead
times to obtain and require the Company to work closely with customer technical
personnel to develop product specifications. The Company believes that the
nature of these approvals gives it a significant competitive advantage and
positions the Company to develop new formulations for its customers' next
generation of products.
SUPPLY
SPECIALTY WAXES
The Company purchases a wide variety of raw materials for the production of
its specialty wax products. The primary feedstocks used for these products are
partially refined crude oil, other waxy feedstocks, and fully processed waxes.
Approximately 35% of the Company's wax-related raw material costs are
attributable to wax feedstocks derived from A/B Crude extracted from Utah
production fields. The Company uses wax feedstocks
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derived from A/B Crude due to its very high wax content. Wax represents
approximately 27% of each barrel of naturally occurring A/B Crude compared to a
typical barrel of crude oil which may have a wax content of as low as 1%. There
are over 400 million barrels of proven reserves of A/B Crude in the Utah
production fields, or more than 70 years of supply based on current demand and
extraction methods. The remaining 65% of the Company's raw materials used for
production of specialty wax products are other partially refined crude oils,
fully processed waxes and additives that are acquired from many sources
worldwide and are readily available in the marketplace.
The Company has a long-term contract for the purchase of its wax feedstocks
derived from A/B Crude. This contract expires on October 1, 2006, but is subject
to annual price and minimum volume renegotiation and early termination. Although
the Company believes that, if needed, there are alternative sources of A/B Crude
and other waxy feedstocks, the unanticipated termination of or nonperformance by
the supplier under this supply contract could have a material adverse effect on
the Company's business and financial condition. Raw materials purchased under
this contract and the Company's other supply relationships are generally priced
based on market price formulas, many of which track crude oil or gasoline fuel
prices.
In order to mitigate the impact of fluctuations in the market price of crude
oil, the Company has entered into a series of price swap contracts that fix the
cost of a portion of the Company's crude oil purchases through March 31, 1998.
In addition, the prices of certain byproducts from the Company's production
processes also track crude oil prices, acting to hedge volatility in the
Company's raw material costs. The Company generally seeks to raise the prices of
its specialty wax products in response to increases in prices of raw materials,
although it has not always been able to raise prices high enough or quickly
enough to offset fully increases in feedstock costs.
The Company continually monitors and evaluates alternative raw material
sources, and actively pursues alternative suppliers which can economically
provide waxes having the quality and consistency that the Company requires.
ADHESIVES AND SEALANTS
The primary raw materials used by the Company in the production of its
adhesives and sealants are butyl rubber, ethylene propylene diene monomer
rubber, polyisobutylenes, carbon black, isocyanates, polyols, petroleum oils and
release films. The Company purchases these materials from a wide variety of
suppliers. In general, these materials are available from multiple suppliers,
and the Company makes an effort to establish secondary suppliers as well as seek
cost-effective alternatives for raw materials having limited availability.
Long-term purchase agreements are pursued when practical.
MANUFACTURING
PRODUCTION OF SPECIALTY WAXES
The Company's wax production and formulation facilities are located in
Western Pennsylvania--the McKean plant located near Farmers Valley, Pennsylvania
and the Emlenton plant located in Emlenton, Pennsylvania. In addition, the
Company's formulation and packaging operations are conducted at four global
locations: Marshall, Texas; Titusville, Pennsylvania; West Drayton, U.K., and
Eupen, Belgium. The Company also owns a PVC wax lubricant facility in Columbia,
Missouri.
At the Company's wax production and formulation facilities, waxy feedstocks
undergo multiple separation processes whereby oil is removed from wax and wax is
separated by melting point into various wax streams. Many of the waxes are
filtered to FDA standards. The resulting wax products are either sold as is,
formulated and then sold, or shipped to one of the Company's formulation and
packaging operations. During each step of wax production, from the raw materials
to the ultimate finished product, quality control personnel sample and monitor
each stream of each process to ensure its quality, specification and
consistency.
10
<PAGE>
At the Company's formulation and packaging facilities, specialty blends of
waxes are produced by mixing together various types and melt point grades of
waxes, as well as by adding non-wax additives such as ethylene-vinyl acetate,
polyethylene and other polymers and resins which can modify overall viscosity
and other specific characteristics dictated by customers. At the facility of the
Rheochem Technologies Division, PVC lubricants are created by combining
carefully selected waxes with precise dosages of secondary lubricants and may
contain a variety of hydrocarbon waxes, polyethylene waxes, fatty acid esters,
fatty acid amides and other ingredients. All formulations designed for specific
customers and market applications are proprietary in nature and produced under
strict quality controls. The Company offers a complete line of packaging
capabilities for its wax products, including pelletizing, prilling, slabbing and
flaking, and ships them in all forms of containers.
The Company's specialty wax formulation and packaging facilities and its PVC
lubricant facility are strategically located to serve world markets and to take
advantage of feedstock sources. The production capabilities of each facility are
similar. In general, bulk materials and ingredients are purchased and then
processed using formulas designed by the Company's and customers' chemists.
The Company's four wax formulation and packaging facilities are ISO (the
International Standards Organization) 9002 certified, a widely recognized
industry standard of quality assurance, and operate under its strict guidelines.
The Company is currently seeking to have its wax production and formulation
facilities ISO certified.
The Company's McKean plant and Emlenton plant are currently operating at
nearly full capacity. Less than 25% of the waxes produced at these two
facilities is utilized as wax raw materials for the Company's other formulation
facilities, with the balance of the wax feedstocks for these operations being
supplied by third parties. The Company believes that there are adequate third
party sources of wax raw materials available to meet the foreseeable needs of
its formulation and packaging operations.
ADHESIVES AND SEALANTS PRODUCTION
All production of adhesives and sealants is conducted at two locations: West
Drayton, U.K. and Michigan Center, Michigan. These facilities are well located
to serve the Company's major customers. The production of adhesives and sealants
is a multi-stage process which involves extensive formulation and mixing. Due to
the diversity in the Company's products, the Company utilizes versatile,
proprietary machinery and equipment to fulfill production requirements. The
product is then packaged in drums, pails, cartridges or other forms based on the
customer's requirements. The Company's manufacturing personnel maintain and
improve operating processes as well as assist in the development of new
processes for new products. The expertise of these employees in the
construction, installation and modification of existing and new manufacturing
systems is critical to the development of new products. The Company believes
that it has the equipment, processes and knowledge to accommodate the production
of new adhesives and sealants without significant capital additions.
In connection with the recently completed ADCO Acquisition, the Company
intends to take steps designed to increase sales of the Company's
U.K.-manufactured adhesives and sealants in the United States and sales of its
United States-manufactured products globally. The Company believes that it will
benefit by manufacturing products in the country or geographic region in which
the products will be sold.
11
<PAGE>
FACILITIES
The Company operates 13 locations with an aggregate total space of
approximately 886,000 square feet. The following table sets forth certain
information regarding these locations. Each of the locations is owned by the
Company unless otherwise indicated. The Company's facilities are subject to a
first lien in favor of its senior lenders.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQ.FT.(1) TYPE OF OPERATIONS
- ----------------------------------------- ------------ --------------------------------------------------------
<S> <C> <C>
Raleigh, North Carolina (2) 6,600 Global corporate offices
Farmers Valley, Pennsylvania 185,000 Wax production and formulation
Emlenton, Pennsylvania 95,000 Wax production and formulation
Titusville, Pennsylvania 50,000 Wax formulation and packaging
Atlanta, Georgia (2) 22,500 United States wax sales, marketing and administration
Marshall, Texas 74,000 Wax formulation and packaging
Michigan Center, Michigan 208,000 Adhesives and sealants production, research and
development, and sales and marketing
Basking Ridge, New Jersey 2,000 Rheochem Technologies sales, marketing and
administration
Columbia, Missouri 45,000 PVC wax lubricant formulation and packaging
West Drayton, Middlesex, England 130,000 European offices, research and development, sales and
marketing, wax formulation and packaging, and adhesives
and sealants production
Eupen, Belgium 67,000 Wax formulation and packaging
Kuala Lumpur, Malaysia (2) 1,200 Asian sales and marketing
Zvolen, Slovakia (3) Eastern European sales and marketing
</TABLE>
- ------------------------
(1) Does not include acreage used for tank farms, other equipment not under
roof, or stand-alone warehouses.
(2) These facilities are leased. The Raleigh, North Carolina lease expires on
May 31, 2001, the Atlanta, Georgia lease expires on March 1, 2001, the
Basking Ridge, New Jersey lease expires on December 1, 2001, and the Kuala
Lumpur, Malaysia lease expires on April 1, 1998.
(3) The Company maintains office space in Zvolen, Slovakia under an informal
arrangement that may be terminated at any time.
COMPETITION
The Company competes in the production and sale of specialty wax products
with (i) large multinational oil refineries which largely produce commodity wax
as a byproduct of their lube oil refining business, (ii) a wide variety of
specialty wax producers around the world, which, like the Company, create value-
added products through formulation and packaging, and (iii) a large number of
specialty chemical manufacturers, which typically compete in one or more niche
markets. Certain of these competitors have greater financial, technical,
marketing, and other resources than the Company. The Company competes on a
variety of factors, including the consistency of its products, the breadth of
its product line, its applied
12
<PAGE>
research and product development capabilities, its worldwide marketing
capabilities, and its value-added customer services.
The adhesives and sealants markets are highly fragmented, and the Company
competes with a large number of other manufacturers, many of which have greater
financial, technical, marketing, and other resources than the Company. The
Company competes by pursuing definable niches in less competitive markets in
which the Company can utilize its technological expertise and applied research
and product development capabilities.
In both the specialty wax and adhesives and sealants businesses, the Company
has developed many of its product formulations in conjunction with its
customers, who often work closely with the Company during the product
development process. Additionally, the Company sells many of its products to
customers pursuant to a technical approval process, and over the past several
years the Company has developed numerous such customer approvals. The approval
process ranges from a relatively simple process of sample evaluation and product
quality review procedures to a more complicated process of matching a specific
molecular structure to a customer's applications. The Company believes that the
nature of its approvals and its close working relationship with certain of its
customers reduces the threat of losing these customers to its competitors and
positions the Company to develop new formulations for these customers' next
generation of products.
PATENTS AND PROPRIETARY INFORMATION
The Company currently has over 3,000 different wax formulations and over
1,650 adhesives and sealants in its proprietary database. The Company relies
primarily upon trade secrets and other unpatented proprietary information in its
operations, particularly in its specialty wax products business. The Company
also holds 19 patents in the United States and 26 patents in other countries on
adhesives and sealants compositions, methods of using such adhesives and
sealants, and other technologies related to such products.
However, there can be no assurance that the Company will be able to maintain
the confidentiality of its trade secrets and proprietary formulations and
processes, that others will not develop similar or better formulations and
processes, that the Company's patents will provide any protection or benefit to
the Company or that additional patents will be issued.
ENVIRONMENTAL MATTERS
The Company is subject to stringent federal, state, local and foreign
environmental laws and regulations relating to the protection of the
environment, including, without limitation, those relating to the storage,
handling, emission and discharge of materials into the environment
("Environmental Laws"). The Company has expended and may be required to expend
in the future, substantial funds for compliance with and remediation under
Environmental Laws. Costs and expenses may be incurred in connection with the
repair or upgrade of facilities to meet existing or new requirements under
Environmental Laws, the remediation of hazardous substances in the soil and
groundwater from historical or ongoing operations at the Company's facilities,
or for other purposes. Except for certain of the matters discussed herein, the
Company believes that it is in material compliance with all applicable
environmental laws and regulations.
Environmental Laws are constantly evolving and it is impossible to predict
accurately the effect they may have upon the capital expenditures, earnings or
competitive position of the Company in the future, except that such
Environmental Laws are becoming increasingly strict and can be expected to
result in increasing compliance costs. To the extent that the cost of compliance
increases and the Company cannot pass on future increases to its customers, such
increases may have an adverse effect on the Company's profitability.
Environmental Laws also provide for substantial penalties and criminal sanctions
for certain violations. The Company is aware of certain conditions, including
the matters discussed below, which may lead to environmental liability being
imposed on the Company with respect to the operation of its facilities
13
<PAGE>
and business. The Company has certain indemnification rights with respect to
certain of these environmental matters. Assuming that the indemnitors continue
to meet their obligations, the Company does not believe that these matters will
have a material adverse effect on the business or financial condition of the
Company. There can be no assurance, however, that the indemnitors will continue
to meet their obligations or that the Company will not incur additional
significant liabilities in connection with these or other environmental matters
or that such liabilities will not have a material adverse effect on the
Company's business or financial condition.
TITUSVILLE FACILITY
The Company is aware of contamination at a portion of its Titusville,
Pennsylvania facility. Investigations to date indicate that the Company's
operations did not contribute to the contamination and that most of the
contamination results from the disposal of waste by an oil refinery that
formerly operated in the area. Although the Company, as the current owner of the
site, could be held strictly liable under certain Environmental Laws for the
cleanup of the Titusville facility, the Company would have the right to recover
some or all of the costs of cleaning up this site from third parties who have
owned or operated the site or contributed to its contamination. Environmental
consultants engaged by the Company have given a preliminary estimate of $1
million for the cost of cleaning up this site. The Company has been engaged in
the process of characterizing the contamination of the Titusville facility
pursuant to the Pennsylvania Land Recycling and Environmental Remediation
Standards Act, which provides for the voluntary cleanup of industrial properties
through the use of streamlined procedures and remedial standards tailored to the
future use of the property. As part of this process, in April 1997 the Company
submitted a final site characterization report to the Pennsylvania Department of
Environmental Protection ("PADEP"). Currently, the Company is working with the
local PADEP representatives to address their comments on the remediation plan.
The Titusville facility is located near the Cyclops Site, which has evidence
of soil and groundwater contamination and has been the subject of an Expanded
Site Inspection by a contractor of the Environmental Protection Agency (the
"EPA"). Costs of remediation of the Cyclops Site have been estimated to range
between $4 million and $15 million in 1995 dollars for soil remediation. No cost
estimate is available for the remediation, if any, of groundwater at this site.
Based upon investigations conducted to date, the Company believes that other
parties are likely responsible for the contamination at the Cyclops Site. Under
certain Environmental Laws, remediation costs for this site would be borne by
parties who have owned or operated the site or are responsible for its
contamination. An EPA investigation, the conclusions of which management
believes to be inaccurate, indicated that the Company formerly owned the Cyclops
Site and disposed of wastes there. In January 1997 the Company received a
request from the current owner of the Cyclops Site to share the cost of a
voluntary investigation and cleanup of the Cyclops Site under the Pennsylvania
Land Recycling and Environmental Remediation Standards Act. The voluntary
investigation and cleanup of this site may accelerate the incurrence of
remediation costs by responsible parties. Based on the Company's investigations
to date, however, the Company believes that it never owned or operated the
Cyclops Site, or arranged for the disposal of or transported hazardous waste
there and that a different company with some common ownership and a similar name
was the prior owner. Because of the proximity of the Company's property to the
Cyclops Site and other unknown factors, there can be no assurance that the
Company will not incur some liability relating to the Cyclops Site.
Under the terms of an agreement between the Parent and ABI pursuant to which
ABI was acquired and became a subsidiary of the Company, the Parent is entitled
to setoff, against the principal and interest otherwise payable on L1,450,988 of
the subordinated debt issued to ABI's former stockholders, (i) costs in excess
of $350,000 relating to any environmental condition at the Titusville facility
and (ii) any costs relating to any environmental condition at the Cyclops Site,
so long as the Parent notifies the former ABI stockholders by June 28, 1999 of
the existence of the conditions giving rise to the setoff claims. Any such
14
<PAGE>
setoff by the Parent will result in a corresponding reduction in a mirror
intercompany note from the Company to the Parent.
EMLENTON AND MCKEAN, PENNSYLVANIA FACILITIES
Quaker State Corporation ("Quaker State"), which formerly owned the
Company's Emlenton and McKean, Pennsylvania facilities, has installed
groundwater recovery systems at these facilities and is using the Company's
wastewater treatment facilities for treatment of the contaminated groundwater.
Quaker State is responsible for all costs of the recovery systems, a fee for use
of the Company's wastewater treatment facilities, and any incremental costs
resulting from the Company's treatment of groundwater in its wastewater
treatment facilities. Groundwater remediation at the McKean and Emlenton
facilities is funded entirely by Quaker State pursuant to an indemnity
agreement. In addition, under the indemnity agreement, certain non-groundwater
environmental remediation and compliance costs are divided equally between
Quaker State and the Company (with the Company paying its share in the form of
subordinated notes payable to Quaker State in equal quarterly installments
commencing on July 1, 1999 through December 31, 2008) up to a total of $5.5
million. Costs above $5.5 million are paid entirely by Quaker State under the
indemnity agreement. The cost sharing arrangement for such non-groundwater
remediation costs and compliance costs expires in 2010. Since 1990, the Company
has incurred approximately $251,000 of indebtedness relating to this
cost-sharing arrangement. There is no expiration date or maximum liability,
however, with respect to Quaker State's obligation to pay for groundwater
remediation at the Emlenton and McKean facilities. There are several additional
environmental compliance issues relating to tanks, separators, drying pits,
cleaning areas and other matters at these facilities, some of which Quaker State
is addressing pursuant to the indemnity agreement and some for which the Company
is seeking coverage from Quaker State under the indemnity agreement. For
example, the EPA is currently reviewing an engineering proposal, funded by
Quaker State pursuant to the indemnity, to remedy a condition of noncompliance
by installing dikeage surrounding several large naptha storage tanks at the
Emlenton facility. Quaker State consistently has performed its groundwater
remediation obligations under the indemnity. However, any failure by Quaker
State to continue funding the costs to be borne by it or the incurrence of any
costs for which Quaker State is not responsible substantially in excess of those
currently expected by the Company could have a material adverse effect on the
Company's financial condition or results of operations.
PAGE AVENUE FACILITY
The Company's manufacturing facility located in Michigan Center, Michigan
(the "Page Avenue Facility") has been the subject of cleanup action during which
numerous buried drums and other waste as well as an underground storage tank
("UST") were removed. The Company believes that former owners and operators of
the Page Avenue Facility buried the drums and other waste and operated the UST.
Residual soil and groundwater contamination apparently released from the drum
waste and/or the UST still remains at the Page Avenue Facility. The results of
investigation and cleanup activities at the Page Avenue Facility have been
reported to the Michigan Department of Environmental Quality ("MDEQ"). Pursuant
to a 1993 agreement through which the Page Avenue Facility was acquired from
Nalco Chemical Company ("Nalco"), the Company has an indemnity, subject to caps
and other limitations, from Nalco for certain losses incurred in connection with
the cleanup of the drum waste area and the former UST (the "Nalco Indemnity").
There can be no assurance, however, that the Company would be able to make any
recovery under the Nalco Indemnity. Under recent changes to the Michigan
environmental cleanup liability statute, the current owner of a contaminated
facility is only liable for cleanup costs if it is responsible for causing a
release of contamination at the facility. The revised Michigan cleanup statute
also shields from liability the new owner of a previously contaminated facility
if that person conducts a baseline environmental assessment ("BEA") of the
facility within 45 days of acquiring it and discloses the results of the
assessment to MDEQ and subsequent purchasers of the facility. The Company
completed a BEA of the Page Avenue Facility within such 45-day period, and MDEQ
has issued a determination letter
15
<PAGE>
to the Company that the BEA is adequate for the purpose of obtaining an
exemption from liability pursuant to the statute. The MDEQ's affirmative
determination does not alter liability with regard to a subsequent release or
threat of release or any exacerbation of existing conditions.
THIRD PARTY WASTE DISPOSAL SITES
The Company has been named as a potentially responsible party ("PRP") at two
third-party waste disposal sites pursuant to the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") -- the Jackson Drop Forge
Site in Jackson, Michigan (the "Jackson Site") and the Frontier Chemical Site in
Niagara Falls, New York (the "Frontier Site"). The Company believes that it has
no involvement with the Jackson Site. In addition, the EPA has informally
indicated that it no longer considers the Company a PRP at the Jackson Site. The
Company believes that a portion of the liability, if any, in connection with the
Jackson Site is subject to the Nalco Indemnity. In connection with the Frontier
Site, the Company has paid approximately $9,000 to settle its share of alleged
liability for removal actions at the site. It is unclear whether the EPA will
require additional cleanup at the Frontier Site.
EMPLOYEES
As of March 31, 1997, the Company had 802 employees in its worldwide
operations. Of that total, 564 were primarily engaged in manufacturing and
production, 84 were primarily engaged in sales, marketing and distribution, 39
were primarily engaged in applied research and product development, and 115 were
primarily engaged in management and administration.
At the Company's Emlenton and McKean, Pennsylvania facilities, 187 of the
hourly production employees are members of the Oil, Chemical and Atomic Workers
International Union. In February 1996, the Company entered into a labor
agreement with this union expiring in January 1999. At its Michigan Center,
Michigan facility, 152 of the Company's hourly production employees are members
of the International Association of Machinists and Aerospace Workers. In May
1994, the Company entered into a five-year labor agreement with this union.
The Company has never experienced a labor strike or other labor-related work
stoppage, and the Company believes that its employee and labor relations are
good.
PRIOR REORGANIZATION
Astor Corporation, a direct, wholly owned subsidiary of Astor Holdings II,
was incorporated as a new venture in 1989 in the State of Delaware under the
name Petrowax PA Inc. ("Petrowax") for the purpose of developing a wax
production business. As part of its start-up plan of operations, Petrowax
acquired two lube oil and wax production facilities from Quaker State. Shortly
after the completion of the acquisition in 1990 and prior to the acquisition of
ABI and ADCO, Petrowax encountered a number of operational and financial
difficulties, resulting in Petrowax filing a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code on February
25, 1992. Petrowax's Chapter 11 plan of reorganization (the "Reorganization
Plan") was confirmed by an order of the bankruptcy court dated May 19, 1995 and
became effective as of June 28, 1995. Pursuant to the Reorganization Plan, (i)
Petrowax received an equity infusion of $10 million from Astor Holdings II in
consideration of the sale of common stock of Petrowax and an additional $17.2
million was contributed to the capital of corporations that became subsidiaries
of Astor Corporation upon consummation of the acquisition of ABI, (ii) Petrowax
entered into a credit facility with Union Bank of Switzerland ("UBS") consisting
of a term loan facility in the amount of $57.5 million and a revolving credit
facility in the amount of $20 million, (iii) Petrowax consummated the
acquisition of ABI and changed its name from Petrowax to Astor Corporation, a
tradename of ABI, and (iv) substantially all of the unsecured, non-priority
claims of Petrowax's creditors, totaling an estimated $48 million, were
extinguished in exchange for payments totaling $875,000. The foregoing
description of the Reorganization Plan reflects only certain basic elements of
the plan, which is more fully described in the Disclosure Statement and
Reorganization Plan, copies of which are available from the Company upon
request.
16
<PAGE>
As a result of the reorganization and certain related actions, the Company
has been under new operational management, its assets and liabilities have been
substantially restructured, and its strategic plan has been significantly
changed from its strategic focus prior to the reorganization.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company has been and is involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation would have a material adverse effect on the financial condition or
results of operations of the Company.
The Company has been named as a defendant, along with 92 other companies, in
a class action lawsuit in Texas. The suit alleges personal injury, death and
other damages arising out of the plaintiffs' exposure to a variety of building
materials and other products while working at the Corpus Christi Army Depot. The
plaintiffs, who are seeking approximately $500 million in damages, appear to
have named as defendants the manufacturers of every substance known to have been
used over an extended period at the Army Depot. The Company product involved
appears to be a sealant used in the installation and repair of commercial
roofing. The Company's insurance carrier is currently defending this action on
behalf of the Company. While the case is still in the early stages of discovery,
according to the insurer, no evidence has been produced to date linking the
Company's sealants to any of the plaintiffs' claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fiscal fourth quarter covered by this annual report, no matter
was submitted to a vote of security holders of the Company.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no market for or trading in any class of the Company's common
equity or the common equity of the Parent, and no dividends have been paid on
any shares of any such class. All outstanding shares of the Company's common
equity are owned by the Parent. Payment of dividends is at the sole discretion
of the Board of Directors. The debt instruments of the Company impose certain
limitations on the amount of dividends that the Company and its subsidiaries may
pay.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below as of March 31 of
each of the years 1993 through 1997 and for the years then ended have been
derived from the Consolidated Financial Statements of Astor Holdings II. The
Consolidated Financial Statements of Astor Holdings II for each of the fiscal
years ended March 31, 1994, 1995, 1996 and 1997 were audited by Ernst & Young
LLP, independent auditors. The Consolidated Financial Statements for the three
years in the period ended March 31, 1997 appear elsewhere in this annual report.
The selected financial data as of and for the fiscal year ended March 31, 1993
have been derived from unaudited consolidated financial statements of Astor
Holdings II, but include all adjustments that are, in the opinion of management,
necessary for a fair presentation of Astor Holdings II's financial position as
of such date and results of operations for such period. Astor Holdings II, the
parent corporation of Astor Corporation, has guaranteed the obligations of Astor
Corporation under the Senior Subordinated Notes and has no material operating
assets or liabilities or operations other than its ownership of all the
outstanding common stock of Astor Corporation, the outstanding $1.7 million
(liquidation preference) of preferred voting ordinary stock of ABI Acquisition 1
plc, a subsidiary of Astor Corporation, a subordinated intercompany note payable
to the Parent in the amount of $6.1 million and a corresponding subordinated
intercompany note receivable from ABI Acquisition 1 plc in the amount of $6.1
million. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related notes
thereto of Astor Holdings II included elsewhere in this annual report.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED MARCH 31,
---------------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
--------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales (3)............................................ $ 197,000 $ 130,957 $ 58,728 $ 49,571 $ 42,447
Gross profit before depreciation..................... 46,610 27,242 7,302 3,759 789
Selling, general and administrative expenses......... 22,114 13,767 4,132 3,652 3,005
Depreciation and amortization........................ 7,892 5,416 1,993 4,041 4,870
Asset writedown...................................... -- -- -- 25,883(4) --
--------- --------- --------- ----------- -----------
Income (loss) from operations........................ 16,604 8,059 1,117 (29,817) (7,086)
Income from Rheochem................................. 651 91 -- -- --
Interest and other income............................ -- -- -- 5 7
Interest expense..................................... 10,214 5,251 1,606 1,476 1,015
Reorganization expense............................... -- 856 1,088 1,256 1,815
--------- --------- --------- ----------- -----------
Income (loss) before income taxes and extraordinary
items.............................................. 7,041 2,043 (1,517) (32,544) (9,909)
Provision for (benefit from) income taxes............ 548 (3,434 (5) -- -- --
--------- --------- --------- ----------- -----------
Income (loss) before extraordinary items............. 6,494 5,477 (1,517) (32,544) (9,909)
Extraordinary items.................................. (3,783 (6) 44,933(7) -- -- --
--------- --------- --------- ----------- -----------
Net income (loss).................................... $ 2,711 $ 50,410 $ (1,517) $ (32,544) $ (9,909)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
OTHER DATA:
Cash flow from investing activities.................. $ (58,187) $ (65,186) $ (274) $ (260) $ (146)
Cash flow from financing activities.................. 51,475 63,273 (114) (508) 3,141
Cash flow from operating activities.................. 18,395 1,357 859 391 (2,894)
EBITDA (8)........................................... 25,147 13,566 3,170 107 (2,216)
EBITDA margin (9).................................... 12.8% 10.4% 5.4% 0.2% N/A
EBITDA to interest expense, net...................... 2.5x 2.6x 2.0x 0.1x N/A
Total debt to EBITDA................................. 5.5x 5.6x 20.2x N/A N/A
Capital expenditures................................. $ 4,889 $ 4,640 $ 274 $ 260 $ 70
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------
1997 1996(1) 1995 1994 1993
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $ 76,253 $ 47,479 $ 13,475 $ 10, 192 $ 12,313
Current liabilities......................................... 38,679 27,604 13,707 6,239 3,743
Total assets................................................ 222,127 142,906 30,166 28,131 58,344
Total debt.................................................. 139,036 76,524 64,075 56,696 55,336
Stockholder's equity (deficit).............................. 38,898 36,358 10) (44,115) (42,599) (10,055)
</TABLE>
- ------------------------------
(1) Represents Astor Holdings II's consolidated results of operations for the
fiscal year ended March 31,1997, which includes the results of operations of
ADCO since its acquisition on October 8, 1996.
(2) Represents Astor Holdings II's consolidated results of operations for the
fiscal year ended March 31, 1996, which includes the results of operations
of ABI since its acquisition on June 28, 1995.
(3) Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
(4) In fiscal year 1994, Astor Holdings II recorded a provision of $25.9
million, representing the writedown of property, plant and equipment and
other intangible assets in order to recognize a permanent impairment of
value.
(5) During this period Astor Holdings II recognized a net deferred tax asset
primarily with respect to net operating loss carryforwards.
(6) Astor Holdings II recorded a loss on early extinguishment of debt (net of
tax benefits of $2.2 million) upon prepayment of loans under the UBS Credit
Facility with part of the net proceeds of the Note Offering.
19
<PAGE>
(7) Astor Holdings II recorded a gain on the forgiveness of debt of $44.9
million upon the effectiveness of Petrowax's Reorganization Plan as of June
28, 1995.
(8) EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization expense, extraordinary items, asset writedown
and reorganization costs. EBITDA as used herein may not be comparable to
similarly titled measures reported by other companies. Information
concerning EBITDA has been included as it is used by certain investors as a
measure of a company's ability to service its debt. EBITDA may also be
considered an important measure to the Company because certain of the
financial ratio covenants in the Company's senior credit facility are based
in part upon EBITDA. EBITDA is not a GAAP measure of financial performance
and should not be used as an alternative to, or be construed as more
meaningful than, operating income or cash flows or as an indicator of the
operating performance or liquidity of Astor Holdings II. EBITDA differs from
cash flows from operating activities primarily because, unlike cash flow
from operations, EBITDA excludes interest expense, taxes and net change in
working capital.
(9) EBITDA margin is the ratio of EBITDA to sales, expressed as a percentage.
(10) In addition to the forgiveness of debt by Petrowax's creditors, the sole
stockholder recapitalized Astor Holdings II on June 28, 1995 by contributing
$30.7 million to its equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
and the related notes included elsewhere in this annual report.
RESULTS OF OPERATIONS
The following table summarizes Astor Holdings II's historical results of
operations as a percentage of sales for the last three fiscal years ended March
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales........................................................................ 100.0% 100.0% 100.0%
Cost of sales................................................................ 76.3 79.2 87.6
--------- --------- ---------
Gross profit before depreciation............................................. 23.7 20.8 12.4
Selling, general and administrative expenses................................. 11.2 10.5 7.0
Depreciation and amortization................................................ 4.0 4.1 3.4
Reorganization expense....................................................... -- 0.7 1.9
--------- --------- ---------
Income from operations....................................................... 8.5 5.5 0.1
Income from Rheochem......................................................... 0.3 0.1 --
Interest expense, net........................................................ 5.2 4.0 2.7
--------- --------- ---------
Income (loss) before income taxes and extraordinary items.................... 3.6 1.6 (2.6)
Provision for (benefit from) income taxes.................................... 0.3 (2.6) --
--------- --------- ---------
Income (loss) before extraordinary items..................................... 3.3 4.2 (2.6)
Extraordinary items.......................................................... (1.9) 34.3 --
--------- --------- ---------
Net income (loss)............................................................ 1.4% 38.5% (2.6)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
20
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
SALES. Sales increased by $66.0 million or 50% from $131.0 million in
fiscal year 1996 to $197.0 million in fiscal year 1997. Of this sales increase,
$23.6 million or 36% is related to the ADCO Acquisition in October 1996, and
$23.4 million or 35% is attributable to the inclusion of results for ABI for a
full twelve months in fiscal year 1997 as compared with only nine months in
fiscal 1996. The remaining $19.0 million or 29% reflects higher volume in the
specialty wax business as a result of capacity improvements and strong wax
demand in the United States. Sales in Europe and Asia kept pace with last year
despite slow economic growth in Europe and adverse foreign exchange
fluctuations. Of this $19.0 million or 15% increase in sales, excluding the
impact of ADCO and ABI, 2.5% was due to an increase in selling prices and 12.5%
was due to an increase in sales volume.
GROSS PROFIT. Gross profit increased by $19.4 million from $27.2 million in
fiscal year 1996 to $46.6 million in fiscal year 1997. Approximately $6.6
million of the increase is attributable to the acquisition of ADCO and $5.9
million is attributable to the acquisition of ABI. Gross profit as a percentage
of sales increased from 20.8% in fiscal year 1996 to 23.7% in fiscal year 1997,
as a result of the ADCO Acquisition and lower unit costs in the specialty wax
segment owing to the capital expenditure program. Excluding the effect of the
ADCO Acquisition, the gross margin improved to 23.0%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $8.3 million from $13.8 million for the
fiscal year ended 1996 to $22.1 million for the fiscal year ended 1997. The
acquisitions of ADCO and ABI accounted for $5.0 million of the increase. Of the
remaining $3.3 million increase, $2.4 million was due to the implementation of
an employee bonus program, payable upon achieving certain financial goals, and
the remainder was due to the expansion of the business as a result of internal
growth. Selling, general and administrative expenses, as a percentage of sales,
increased from 10.5% in fiscal year 1996 to 11.2% in fiscal year 1997. Excluding
the impact of the employee bonus program, selling, general and administrative
expenses as a percentage of sales dropped to 10.0%.
INCOME FROM RHEOCHEM. The Company's share of equity earnings from Rheochem
was $0.7 million in fiscal year 1997 compared to $0.1 million from Rheochem for
fiscal year 1996. The Company acquired its interest in Rheochem on June 28, 1995
with the acquisition of ABI.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $2.5 million from $5.4 million for the 1996 fiscal year to $7.9
million for the 1997 fiscal year, primarily because of the acquisitions of ADCO
and ABI.
INTEREST EXPENSE, NET. Interest expense, net, increased by $4.9 million
from $5.3 million for the fiscal year ended March 31, 1996 to $10.2 million for
the fiscal year ended March 31, 1997. This increase was due to the higher debt
level of the Company related to the acquisitions of ADCO and ABI. During fiscal
year 1997 the Company had an average amount of debt outstanding of $100.9
million, with the average interest rate during this period equal to 10.1%.
During fiscal year 1996 the Company had an average amount of debt outstanding of
$53.8 million, with the average interest rate during this period equal to 9.9%.
REORGANIZATION ITEMS. No reorganization expenses were recognized in fiscal
year 1997. Reorganization expenses of $0.9 million were recorded in fiscal year
1996 and were attributable to professional fees and employee operating costs
associated with Petrowax's operating under bankruptcy.
INCOME TAX EXPENSE. The provision for income tax was $0.5 million in fiscal
year 1997 compared to a benefit from income taxes of $3.4 million in fiscal year
1996. Income taxes for fiscal years 1997 and 1996 included tax benefits relating
to the release of valuation allowances of $1.6 million and $4.9 million,
respectively.
21
<PAGE>
NET INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the factors discussed
above, particularly the acquisitions of ABI and ADCO, net income before
extraordinary items increased by $1.0 million from $5.5 million in fiscal year
1996 to $6.5 million in fiscal year 1997.
EXTRAORDINARY ITEM. The $3.8 million extraordinary loss on early
extinguishment of debt in fiscal year 1997 was related to the write-off of
deferred financing costs as a result of the early repayment of loans under the
UBS Credit Facility. An extraordinary item resulting from the gain on
cancellation of $44.9 million of debt was recorded in fiscal 1996, reflecting
the discharge of pre-petition indebtedness of Petrowax.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
SALES. Sales increased by $72.3 million from $58.7 million in fiscal year
1995 to $131.0 million in fiscal year 1996, primarily as a result of the June
1995 acquisition of ABI, which accounted for $68.6 million of such increase.
Excluding the impact of ABI, sales increased $3.7 million or 6% from $58.7
million in fiscal year 1995 to $62.4 million in fiscal year 1996 as a result of
(i) increased sales volume owing to capacity improvements achieved from the
capital expenditure program completed in January 1996, (ii) higher specialty wax
prices realized in the U.S., (iii) a more focused marketing effort provided by
the acquisition of ABI's sales force resulting in greater sales volume and (iv)
a product mix shift to higher priced products. Of this 6% increase, excluding
the impact of ABI, 5% was due to an increase in product prices and 1% was due to
an increase in sales volume.
GROSS PROFIT. Gross profit increased by $19.9 million from $7.3 million in
fiscal year 1995 to $27.2 million in fiscal year 1996. Gross profit as a
percentage of sales increased from 12.4% in fiscal year 1995 to 20.8% in fiscal
year 1996, primarily as a result of the acquisition of ABI. Excluding ABI,
Astor's gross profit increased by $2.8 million or 38% from $7.3 million in
fiscal year 1995 to $10.1 million in fiscal year 1996 and, on a percentage of
sales basis, from 12.4% in fiscal year 1995 to 16.2% in fiscal year 1996,
principally as a result of the reasons discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $9.7 million from $4.1 million in fiscal
year 1995 to $13.8 million in fiscal year 1996. The acquisition of ABI accounted
for $7.6 million of the selling, general and administrative expenses increase.
Included in selling, general and administrative expenses for fiscal year 1996
were non-recurring costs of $0.5 million related to a flood at the Farmer's
Valley facility and $0.3 million related to non-recurring moving costs.
INCOME FROM RHEOCHEM. The Company's share of equity earnings from Rheochem
was $0.1 million in fiscal year 1996 compared to no income from Rheochem for
fiscal year 1995. The Company acquired its interest in Rheochem on June 28, 1995
with the acquisition of ABI.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $3.4 million from $2.0 million in fiscal year 1995 to $5.4 million
in fiscal year 1996, primarily owing to the acquisition of ABI.
INTEREST EXPENSE, NET. Interest expense, net, increased by $3.7 million
from $1.6 million in fiscal year 1995 to $5.3 million in fiscal year 1996.
During fiscal 1996 the Company had an average amount of debt outstanding of
$53.8 million, with the average interest rate during this period equal to 9.9%.
The increased debt was primarily attributable to the acquisition of ABI.
REORGANIZATION ITEMS. Reorganization expenses of $0.9 million were
recognized in fiscal year 1996 compared to $1.1 million in fiscal year 1995.
These expenses were primarily attributable to professional fees and employee
costs associated with Petrowax's operating under bankruptcy. No additional costs
pertaining to this matter are expected in the future.
22
<PAGE>
INCOME TAXES. A net income tax benefit of $3.4 million was recorded in
fiscal 1996. This benefit is primarily attributed to the reduction in the
valuation allowance related to the net deferred tax asset.
NET INCOME BEFORE EXTRAORDINARY ITEMS. Net income before extraordinary
items increased by $7.0 million from a loss of $1.5 million in fiscal year 1995
to income of $5.5 million in fiscal 1996.
EXTRAORDINARY ITEM--GAIN ON CANCELLATION OF DEBT. An extraordinary item
resulting from the gain on cancellation of debt of $44.9 million was recorded in
fiscal year 1996 reflecting the discharge of pre-petition indebtedness of
Petrowax.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the fiscal year ended March
31, 1997 was $18.4 million compared to $1.4 million for the fiscal year ended
March 31, 1996. The $18.4 million of net cash provided in fiscal 1997 was
primarily due to cash flow from operating profits of $13.5 million and a $4.9
million source of cash from working capital. The cash from working capital
resulted mainly from a $7.3 million increase in accrued interest payable and
accounts payable which offset increased inventories because of higher sales. The
$1.4 million of net cash provided by operating activities for the fiscal year
ended March 31, 1996 resulted primarily from cash flow from operating profits of
$6.3 million and a $4.9 million use of cash from working capital. Included in
cash uses for fiscal year 1996 was $1.0 million attributable to the
reorganization of Petrowax.
Cash used in investing activities for the fiscal years ended March 31, 1997
and 1996 was $58.2 million and $65.2 million, respectively. Cash used in
investing for the fiscal year ended March 31, 1997 included the ADCO acquisition
cost of $53.5 million (net of cash acquired) and capital expenditures of $4.9
million. Cash used for the fiscal year ended March 31, 1996 included the ABI
acquisition costs of $60.8 million (net of cash acquired) and capital
expenditures of $4.6 million. Astor expects to fund future capital expenditures
primarily from cash generated from operating activities.
Cash provided by financing activities for the fiscal year ended March 31,
1997 was $51.5 million due to (i) proceeds from the long-term debt issuance of
$121.6 million, net of fees, and (ii) the repayment of the $69.7 million of
outstanding indebtedness under the UBS Credit Facility. Cash provided by
financing activities of $63.3 million for the fiscal year ended March 31, 1996
was due to (i) proceeds from the long-term debt issuance of $63.5 million, net
of fees, (ii) $30.4 million from the issuance of stock, net of fees, and (iii)
the repayment of $30.3 million of existing debt and settlement of bankruptcy
claims.
On October 8, 1996 the Company completed the ADCO Acquisition. This
acquisition was financed through the private placement of the Senior
Subordinated Notes. The remaining net proceeds from the Senior Subordinated
Notes were used to repay outstanding indebtedness under the UBS Credit Facility
and expenses. The Company also entered into a senior secured credit agreement
(the "Senior Bank Facility") with certain lenders and The Chase Manhattan Bank,
as agent, providing for a six year term loan, denominated in eurosterling, in an
amount equivalent to $20.0 million and a six year revolving credit facility in
an amount equivalent to $30.0 million (subject to borrowing base limitations),
which will be available in U.S. dollars or eurosterling on a revolving basis.
The Company's primary capital requirements consist of debt service and
capital expenditures. The required debt amortization payments under the Senior
Bank Facility for the next five fiscal years are: (i) $1.4 million in fiscal
year 1998, (ii) $1.8 million in fiscal year 1999, (iii) $3.1 million in fiscal
year 2000, (iv) $4.7 million for fiscal year 2001 and (v) $5.1 million for
fiscal year 2002. The term loan and revolving credit loans under the Senior Bank
Facility bear interest, at the election of the Company, at an interest rate
determined either by the Bank's prime lending rate plus an initial margin of
1.25% or the eurodollar rate specified in the Senior Bank Facility plus an
initial margin of 2.5%.
The Senior Bank Facility and the Senior Subordinated Notes impose various
restrictions and covenants on the Company, including, among other things,
financial covenants relating to the maintenance of
23
<PAGE>
minimum fixed charge coverage ratios and interest coverage ratios, as well as
restrictions on indebtedness, guarantees, acquisitions, capital expenditures,
investments, loans, liens, restricted payments, and asset sales. In addition,
the Senior Bank Facility and the Senior Subordinated Notes limit the ability of
the Company and its subsidiaries to declare or pay any dividend on, or set apart
assets for a sinking or other analogous fund for the purchase, redemption,
defeasance, retirement or other acquisition of, any capital stock or any
warrants or options to purchase any such capital stock. The Senior Bank Facility
limits the ability of Astor Holdings II to pay dividends to the Parent.
Effectively, Astor Holdings II may only pay dividends to the Parent in an amount
equal to that which is required to be paid by the Parent pursuant to its
management services agreement with Century City 1800 Partners, L.P. and UBS
Capital LLC.
The Company estimates that approximately $3.5 million is required annually
for maintenance and improvements of its facilities. The Company's principal
source of cash to fund these capital requirements is net cash provided by
operating activities. As of March 31, 1997, the Company had available $24.5
million under its existing borrowing facilities, subject to certain borrowing
base limitations. On April 30, 1997, the Company borrowed $12.5 million under
the Senior Bank Facility to finance a portion of the acquisition of the
remaining 50% of Rheochem. As of March 31, 1997, Astor Corporation had net
operating loss carryforwards ("NOLs") aggregating approximately $22.0 million
available to offset certain taxable income in future years. The utilization of
these NOLs would be limited under Section 382 of the Internal Revenue Code (the
"Code") if Astor Corporation were to undergo, or is deemed to have undergone, an
"ownership change" as defined by the Code. There can be no assurance that such
NOLs may be utilized in the future. The NOLs are expected to expire in the years
2007 through 2009.
SEASONALITY. Revenues and earnings of the Company's two business segments,
specialty waxes and adhesives and sealants, tend to be seasonal because of
reduced candle wax sales in December resulting from customer purchase patterns
and the decline of roofing and building construction projects in winter months.
Both segments are also impacted by fewer work and shipping days because of
scheduled plant shutdowns during the winter holidays. These factors have
historically resulted in seasonal fluctuations in the performance of both
segments, with the first and second quarters being stronger than the third and
fourth quarters.
24
<PAGE>
FOREIGN EXCHANGE EXPOSURE. The functional currency for the majority of the
Company's foreign operations is the applicable local currency. The bulk of the
Company's foreign sales, raw materials, expenses, assets, and liabilities
(including bank debt) are denominated in the local currency, providing for a
natural hedge for currency exposure. For a small portion of foreign sales
transactions, the Company uses forward foreign exchange contracts to mitigate
exposure. There were no significant contracts outstanding at March 31, 1997. The
translation from the applicable foreign currency to U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. Translation adjustments resulting from such
translation were $0.5 million at March 31, 1997 and $0.3 million at March 31,
1996.
HEDGING ACTIVITIES. The Company is currently not a party to any interest
rate swap contracts relating to any of its outstanding debt. As of March 31,
1997, $109.9 million of the Company's outstanding debt of $132.9 million was
subject to a fixed rate. In order to mitigate the impact of market price
fluctuations, the Company has hedged a portion of its raw material costs by
entering into a series of price swap contracts which fix the cost of a portion
of the Company's crude oil purchases through March 31, 1998.
ENVIRONMENTAL MATTERS. See "Business and Properties--Environmental Matters"
for a discussion of certain environmental matters relating to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ASTOR HOLDINGS II, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................................................ F-2
Consolidated Statements of Operations...................................................................... F-3
Consolidated Statements of Stockholder's Equity (Deficit).................................................. F-4
Consolidated Statements of Cash Flows...................................................................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name, age and position of each of the
directors and executive officers of Astor Holdings II. Unless otherwise noted,
each individual serves in the indicated capacity at each of Astor Holdings II,
Astor Corporation and the Parent. Each director will hold office until the next
annual meeting of stockholders or until his successor has been elected and
qualified. Officers are elected by the Board of Directors and serve at the
discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Boyd D. Wainscott...................... 53 Chairman of the Board, Chief Executive Officer, Director
C. Richard Spalton..................... 58 Director, President
John F. Gottshall...................... 50 Vice President, Chief Financial Officer, Treasurer, Assistant
Secretary
David E. Hawkins....................... 47 Vice President, Chief Administrative Officer
Joseph C. Houssa....................... 51 Vice President, Chief Technical Officer (1)
Philip D. Beery........................ 52 President of ADCO Division (1)
Thomas C. Pedersen..................... 43 President of Rheochem Technologies Division (1)
Adrian Browne.......................... 36 Vice President, Controller, Assistant Treasurer, Assistant
Secretary (1)
Thomas P. Causer....................... 48 Vice President, Wax Manufacturing Operations (1)
Ron B. Hallewell....................... 48 Vice President, Sales and Marketing, America (1)
Kevin A. Quinn......................... 55 Vice President, General Counsel, Secretary
Alan J. Andreini....................... 51 Director
Richard R. Crowell..................... 42 Director
Mark C. Hardy.......................... 33 Director
Justin S. Maccarone.................... 37 Director
Gerald L. Parsky....................... 54 Director
Richard K. Roeder...................... 48 Director
Charles E. Sax......................... 64 Director
W. Montague Yort....................... 33 Director, Assistant Secretary
</TABLE>
- ------------------------
(1) Individual holds such positions at Astor Corporation and not at Astor
Holdings II or the Parent.
BOYD D. WAINSCOTT has served as Chairman and Chief Executive Officer of the
Company since 1994 and as a director of the Company since June 1995. From 1990
to 1993, Mr. Wainscott served as President and Chief Executive Officer of
Pitman-Moore, a division of the IMCERA Group and a global manufacturer and
marketer of animal health and nutrition products. Prior to this, Mr. Wainscott
held several senior marketing positions within Pitman-Moore and at Stauffer
Chemical Company where he was responsible for sales and marketing of a division
producing herbicides and industrial products.
26
<PAGE>
C. RICHARD SPALTON has served as President and a director of the Company
since June 1995. Prior to that, Mr. Spalton was the Managing Director of Astor
Stag Ltd. and ABI since 1974. Mr. Spalton joined ABI in 1971 as a Marketing
Manager following nine years with Shell Oil in England.
JOHN F. GOTTSHALL joined the Company in 1995 as its Chief Financial Officer.
From 1991 to 1995, Mr. Gottshall served as Vice President and Chief Financial
Officer at Trident NGL, Inc., a natural gas liquids firm. In addition, Mr.
Gottshall was Senior Vice President and Chief Financial Officer of Freeport-
McMoRan Resource Partners L.P., an agricultural products firm from 1987 to 1990
and Treasurer of Freeport-McMoRan Inc. from 1985 to 1987.
DAVID E. HAWKINS has been the Chief Administrative Officer of the Company
since 1994. From 1987 to 1993, Mr. Hawkins served in several senior management
positions, including Vice President of Marketing from 1987 to 1989, and Senior
Vice President of Strategic Planning, Mergers and Acquisitions from 1989 to 1993
at Pitman-Moore, a division of the IMCERA Group and a worldwide manufacturer of
animal health and nutrition products.
JOSEPH C. HOUSSA has been Vice President and Chief Technical Officer of
Astor Corporation since June 1995. Mr. Houssa served ABI in several management
positions since 1970, including Group Technical Director of ABI's West Drayton
facility and director of Astor Stag Ltd., ABI's English subsidiary from 1989 to
June 1995. Prior to that he was Chief Chemist and Product Director of Astor Stag
S.A., ABI's Belgian subsidiary.
PHILIP D. BEERY has been President of the ADCO Division of Astor Corporation
since January 1997 and served as Chief Operating Officer of the ADCO Division
from October 1996 to December 1996. From 1990 to October 1996, Mr. Beery served
as Vice President of Sales and Marketing of ADCO, during which time he was in
charge of all sales and marketing, including market development and new
products.
THOMAS C. PEDERSEN has been President of the Rheochem Technologies Division
of Astor Corporation since May 1997. Mr. Pedersen founded Rheochem Manufacturing
Company, Inc. in 1984 and served as Chief Executive Officer of that company and
its successor, Rheochem Technologies, Inc., until April 1997. Mr. Pedersen has
wide experience in PVC compounding technology.
ADRIAN BROWNE has been a Vice President of Astor Corporation since 1996 and
Controller of Astor Corporation since June 1995. Mr. Browne joined ABI as Group
Finance Director in July 1994. Previously, he spent twelve years with the London
office of KPMG Peat Marwick and was Senior Manager of the Audit Department from
1992 to 1994, working on audit and corporate finance assignments. Mr. Browne is
a chartered accountant.
THOMAS P. CAUSER has served as Vice President, Wax Manufacturing Operations
of Astor Corporation since 1992. From 1990 to 1992, Mr. Causer was McKean Plant
Manager and Quality Control Manager. Mr. Causer had previously spent 12 years as
Quality Control Manager at Quaker State.
RON B. HALLEWELL has been Vice President of Sales and Marketing, America at
Astor Corporation since the acquisition of ABI in June 1995. Mr. Hallewell
joined ABI in 1972 and held various management positions, including Vice
President of Sales and Marketing of Astor Wax Corporation, a U.S. subsidiary of
ABI, from August 1986 to June 1995.
KEVIN A. QUINN was elected Vice President, General Counsel and Secretary of
the Company in February 1997. From 1993 to 1996 Mr. Quinn served in several
senior legal positions with Schering-Plough Corporation, a pharmaceutical
company, including Associate General Counsel and Secretary from 1994 to 1996.
Prior to that, Mr. Quinn was Vice President, Secretary and Associate General
Counsel of The Pittston Company, a diversified mining, air freight and security
services firm.
ALAN J. ANDREINI has served as a director of the Company since 1989. Mr.
Andreini is President and Chief Operating Officer of InterWorld Corporation, a
developer of software solutions for high-end commercial users of the Internet.
From 1978 until April 1997 Mr. Andreini served as Executive Vice
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<PAGE>
President of Comdisco, Inc., a technology services firm, where he was
responsible for budgets, human resources, venture leasing and compensation. Mr.
Andreini currently serves as a director of Comdisco, Inc., Hugoton Energy
Corporation, and Youth Services International, Inc.
RICHARD R. CROWELL has served as a director of the Company since June 1995.
Mr. Crowell is a founding partner of Aurora Capital Partners L.P. ("ACP") and
has served as a Managing Director of ACP since 1991. Prior to forming ACP, Mr.
Crowell was a Managing Director of Rosecliff, Inc., the management company for
Acadia Partners L.P. In addition, Mr. Crowell currently serves as a director of
Aftermarket Technology Corp., a remanufacturer and distributor of automobile and
truck drivetrain products ("ATC").
MARK C. HARDY has served as a director of the Company since June 1995. Mr.
Hardy joined ACP in June 1993 as an Associate and has been a Vice President of
ACP since December 1995. Prior to joining ACP, Mr. Hardy was an Associate at
Bain & Company, a consulting firm. In addition, Mr. Hardy currently serves as a
director of ATC.
JUSTIN S. MACCARONE has served as a director of the Company since September
1996. Mr. Maccarone has served as a Managing Director of UBS Capital LLC ("UBS
Capital") since 1993 and as President and a director of UBS Partners LLC and its
predecessor ("UBS Partners") since 1995. Mr. Maccarone served as a Senior Vice
President at GE Capital Corporation from 1992 to 1993 and Vice President from
1989 to 1992. Mr. Maccarone also serves as a director of Peoples Telephone
Company, Inc.
GERALD L. PARSKY has served as a director of the Company since 1994. Mr.
Parsky is a founding partner and has been the Chairman and Managing Director of
ACP since its founding in 1991. Mr. Parsky is also the beneficial owner of
Century City 1800 Partners, L.P., a Delaware limited partnership ("CC 1800").
Prior to forming ACP, Mr. Parsky was a Senior Partner and member of the
Executive and Management Committees with the law firm of Gibson, Dunn &
Crutcher. Mr. Parsky is a director of ATC.
RICHARD K. ROEDER has served as a director of the Company since June 1995.
Mr. Roeder is a founding partner and has been a Managing Director of ACP since
its founding in 1991. Prior to forming ACP, Mr. Roeder was a partner in the law
firm of Paul, Hastings, Janofsky & Walker, where he served as Chairman of the
firm's Corporate Law Department and a member of its National Management
Committee. In addition, Mr. Roeder currently serves as a director of ATC.
CHARLES E. SAX has served as a director of the Company since May 1997. Mr.
Sax served as President of the ADCO Division of Astor Corporation from October
1996 to December 1996. From 1985 to October 1996, Mr. Sax served as President of
ADCO and from 1993 to October 1996 he served as a director of ADCO. Mr. Sax
began working for ADCO in 1985, following its acquisition by Nalco, and spent a
combined 38 years with Nalco and ADCO.
W. MONTAGUE YORT has served as a director of the Company since June 1995.
Mr. Yort joined ACP in April 1993 as an Associate and has been a Vice President
of ACP since December 1995. From June 1992 to April 1993, Mr. Yort was an
Associate at Morgan Stanley & Co. Incorporated.
Under the Stockholders Agreement, dated as of June 27, 1995, among the
Company and certain of its stockholders, warrant holders and option holders, UBS
Partners, a stockholder of the Company, is entitled to appoint two members of
the Board of Directors of the Parent and one member of the Boards of Directors
of Astor Holdings II and its subsidiaries. Pursuant to the Stockholders
Agreement, UBS Partners designated Justin S. Maccarone to serve on the Boards of
Directors of the Parent and its subsidiaries. In addition, UBS Partners is
entitled to have one UBS Board nominee serve as a member of each Board committee
of the Parent and its subsidiaries. Upon consummation of a qualified initial
public offering by the Parent, the rights of UBS Partners under the Stockholders
Agreement to designate such individuals to serve on such boards and committees
will terminate.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION SUMMARY
The following table sets forth compensation of the Chief Executive Officer
and the other four most highly compensated executive officers of the Company for
the fiscal year ended March 31, 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ---------------
COMPENSATION NUMBER OF
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION(2) OPTIONS(#)(3) COMPENSATION
---------------- --------------- -------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ----------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Boyd D. Wainscott,................. 1997 $ 309,000 $ 364,291 -- -- $ 17,200(4)
Chief Executive Officer 1996 270,000 170,482 -- 81,818 58,308
C. Richard Spalton,................ 1997 206,000 200,000 -- -- 19,358(5)
President 1996 178,250 96,487(6) -- 34,091 17,290
John F. Gottshall,................. 1997 195,700 159,051 -- -- 17,183(7)
Chief Financial Officer 1996 142,500(8) 22,900 -- 10,227 87,168
David E. Hawkins,.................. 1997 162,000 108,743 -- 1,000 2,670(9)
Chief Administrative Officer 1996 135,000 18,600 -- 6,818 105,947
Joseph C. Houssa,.................. 1997 152,800 99,320 -- -- 31,046(5)
Chief Technical Officer 1996 143,800 25,110 -- 10,227 31,168
</TABLE>
- ------------------------------
(1) Figures are in United States dollars and where appropriate reflect an
assumed exchange rate of L1.00 to $1.60 for fiscal year 1997 and L1.00 to
$1.55 and 32.00 Belgian francs to $1.00 for fiscal year 1996.
(2) Excludes perquisites and other personal benefits which do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for any Named
Executive Officer.
(3) Represents options issued by the Parent to purchase securities of the
Parent. All such options were issued pursuant to the Parent's 1995 Stock
Incentive Plan (the "Stock Incentive Plan"). Pursuant to the Stock Incentive
Plan, the Compensation Committee of the Board of Directors of the Parent
(the "Compensation Committee") determines the terms and conditions of each
option granted.
(4) Reflects the payment of relocation costs of $5,240, insurance premiums of
$8,870, and matching contributions of $3,090 under the Company's Retirement
Savings Plan.
(5) Reflects contributions by the Company under a pension plan covering senior
employees based in the U.K. Annual benefits under this plan are equal to the
product of final pensionable salary and pensionable years of service divided
by 60. Benefits are not subject to social security or other offset.
(6) Includes a bonus of $46,113 paid by ABI prior to the June 1995 acquisition.
(7) Reflects the payment of relocation costs of $10,985, insurance premiums of
$1,795, and matching contributions of $4,403 under the Company's Retirement
Savings Plan.
(8) Reflects salary from July 1995 (commencement date of employment) to March
1996.
(9) Reflects the payment of insurance premiums of $2,670.
29
<PAGE>
OPTION GRANTS
Shown below is information for the fiscal year ended March 31, 1997
concerning option grants by the Parent to the Named Executive Officers to
purchase shares of the Parent's Class D Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL
GRANTS VALUE AT ASSUMED
-------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE PER EXPIRATION --------------------
(#)(1) FISCAL YEAR SHARE DATE 5% 10%
------------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Boyd D. Wainscott...................... -- -- -- -- -- --
C. Richard Spalton..................... -- -- -- -- -- --
John F. Gottshall...................... -- -- -- -- -- --
David E. Hawkins....................... 1,000 4.2% $ 15.00 3/17/07 $ 9,433 $ 23,906
Joseph C. Houssa....................... -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) These options were granted under the Stock Incentive Plan. The exercise
price is the fair market value of the underlying shares on the date of
grant. The options are for a term of ten years and become exercisable in
five equal annual installments commencing on October 8, 1997, subject to
satisfaction or waiver of an EBITDA goal, or in full immediately prior to a
change of control of the Parent.
EXERCISES OF OPTIONS AND AGGREGATE YEAR-END OPTION VALUES
Shown below is information with respect to the year-end values of all
options held by the Named Executive Officers. No Named Executive Officer
exercised any options in the fiscal year ended March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL YEAR-END
FISCAL YEAR-END (#) ($)(1)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------------- --------------------
<S> <C> <C>
Boyd D. Wainscott.............................. 16,364/65,454 81,820/327,270
C. Richard Spalton............................. 6,818/27,273 34,090/136,365
John F. Gottshall.............................. 2,045/8,182 10,225/40,910
David E. Hawkins............................... 1,364/6,454 6,820/27,270
Joseph C. Houssa............................... 2,045/8,182 10,225/40,910
</TABLE>
- ------------------------
(1) Calculated by using the estimated fair market value of the Common Stock on
March 31, 1997, as determined by the Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Boyd D. Wainscott
effective as of June 28, 1995, which provides that he will serve as Chairman and
Chief Executive Officer of the Company for an initial term of three years, which
the Company can extend for successive one year periods. Pursuant to the
agreement, Mr. Wainscott receives an annual salary of $300,000 subject to
increase at the discretion of the Board of Directors of the Company. In
addition, Mr. Wainscott is entitled to receive an annual
30
<PAGE>
bonus in an amount up to 100% of his then annual base salary, subject to the
satisfaction of certain performance conditions and at the sole discretion of the
Board of Directors of the Company if such conditions are not met. On October 30,
1995 Mr. Wainscott received stock options to purchase 81,818 shares of Common
Stock of the Parent which vest over a five-year period and become exercisable
upon vesting. If Mr. Wainscott's employment is terminated without cause by the
Company, he will be entitled to receive as severance an amount equivalent to his
then annual base salary for the remaining three year initial term of his
employment and the accrued portion of any bonus through the date of the
termination.
The Company has entered into an employment agreement with Charles R. Spalton
effective as of July 1, 1995, which provides that he will serve as President of
the Company. The Company may terminate Mr. Spalton's employment on 24 months
notice and Mr. Spalton may terminate his employment on six months notice,
provided that such notice, whether given by the Company or Mr. Spalton, may not
be effective prior to June 30, 1998. The Company may terminate Mr. Spalton's
employment by giving him at least 24 months written notice. Pursuant to the
agreement, Mr. Spalton receives an annual salary of L125,000 (or $200,000 at an
exchange rate of L1.00 to $1.60), subject to increase at the discretion of the
Board of Directors of the Company. In addition, Mr. Spalton is entitled to
receive an annual bonus in an amount up to 75% of his then annual base salary,
subject to the satisfaction of certain performance conditions and at the sole
discretion of the Board of Directors of the Company if such conditions are not
met. On October 30, 1995 Mr. Spalton received stock options to purchase 34,091
shares of Common Stock of the Parent which vest over a five year period and
become exercisable upon vesting.
The Company has entered into an employment agreement with John F. Gottshall
effective as of July 1, 1995, which provides that he will serve as Chief
Financial Officer of the Company for an initial term of two years, which the
Company can extend for successive one year periods. Pursuant to the agreement,
Mr. Gottshall receives an annual salary of $190,000, subject to increase at the
discretion of the Board of Directors of the Company. In addition, Mr. Gottshall
is entitled to receive an annual bonus in an amount up to 40% of his then annual
base salary, subject to the satisfaction of certain performance conditions and
at the sole discretion of the Board of Directors of the Company if such
conditions are not met. On October 30, 1995 Mr. Gottshall received stock options
to purchase 10,227 shares of Common Stock of the Parent which vest over a five
year period and become exercisable upon vesting. If Mr. Gottshall's employment
is terminated without cause by the Company, he will be entitled to receive as
severance (i) any accrued bonus, (ii) an amount equal to his annual base salary
and any bonus for the initial term of two years as if he were employed for such
period, (iii) 24-months of annual base salary at the time of termination or
expiration, commencing as of the later of the termination date or the expiration
of the initial two-year term, with such payments stopping upon Mr. Gottshall's
employment with another employer; provided, however, he receives payment of his
annual base salary for at least 12-months and (iv) an additional 12-months of
bonus credited as if he were employed for the 12-month period following the
later of the date of termination and the initial two-year term.
The Company has entered into an employment agreement with David E. Hawkins
which provides that he will serve as Chief Administrative Officer of the Company
for a term expiring on July 1, 1998, which the Company can extend for successive
one-year periods. Pursuant to the agreement, Mr. Hawkins receives an annual
salary of $162,000, subject to increase at the discretion of the Board of
Directors of the Company. In addition, Mr. Hawkins is entitled to receive an
annual bonus in an amount up to 50% of his then annual base salary, subject to
the satisfaction of certain performance conditions and at the sole discretion of
the Board of Directors of the Company if such conditions are not met. On October
30, 1995 Mr. Hawkins received stock options to purchase 6,818 shares of Common
Stock of the Parent and on March 17, 1997 he received options to purchase 1,000
such shares. Mr. Hawkin's options vest over a five year period and become
exercisable upon vesting. If Mr. Hawkins' employment is terminated without cause
by the Company, he will continue to receive his annual salary for twelve months
following the termination and the accrued portion of any bonus through the date
of termination.
31
<PAGE>
Astor Corporation has entered into an employment agreement with Joseph C.
Houssa effective as of July 1, 1995, which provides that he will serve as Chief
Technical Officer of Astor Corporation. Astor Corporation may terminate Mr.
Houssa's employment on 24 months notice and Mr. Houssa may terminate his
employment on six months notice, provided that such notice, whether given by
Astor Corporation or Mr. Houssa, may not be effective prior to June 30, 1998.
Pursuant to the agreement, Mr. Houssa receives an annual salary of L90,000 (or
$144,000 at an exchange rate of L1.00 to $1.60), subject to increase at the
discretion of the Board of Directors of Astor Corporation. In addition, Mr.
Houssa is entitled to receive an annual bonus in an amount up to 50% of his then
annual base salary, subject to the satisfaction of certain performance
conditions and at the sole discretion of the Board of Directors of Astor
Corporation if such conditions are not met. On October 30, 1995 Mr. Houssa
received stock options to purchase 10,227 shares of Common Stock of the Parent
which vest over a five year period and become exercisable upon vesting.
The employment agreement of each of Messrs. Wainscott, Spalton, Gottshall,
Hawkins and Houssa also contains (i) a nondisclosure provision which is
effective for the term of such individual's employment with the Company and for
an indefinite period thereafter and (ii) noninterference and non-competition
provisions, each of which is effective for the term of such individual's
employment with the Company and two years thereafter.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors are reimbursed for
their out-of-pocket expenses in attending Board meetings. Messrs. Crowell,
Hardy, Parsky, Roeder and Yort receive no fees in their capacities as directors,
but see "Certain Relationships and Related Transactions" for a description of
certain other arrangements pursuant to which CC 1800, an affiliate of ACP,
receives compensation from the Company. Each of Messrs. Crowell, Hardy, Parsky,
Roeder and Yort is an affiliate of or limited partner of or employed by ACP. Mr.
Parsky is the sole limited partner and the sole beneficial owner of the general
partner of CC 1800. See "Directors and Officers of the Registrant" and "Security
Ownership of Certain Beneficial Owners and Management".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Andreini, Crowell and Roeder serve as the Compensation Committee of
the Company and administer the Stock Incentive Plan.
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All the issued and outstanding capital stock of Astor Holding II is owned by
the Parent. The table below sets forth the beneficial ownership of each class of
issued and outstanding capital stock of the Parent as of May 31, 1997, by each
director and Named Executive Officer of Astor Holdings II, the directors and
executive officers of Astor Holdings II as a group, and each person who at such
time beneficially owned more than 5% of the outstanding shares of any class of
voting securities of the Parent.
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK --------------------------------------
---------------------------------------- NUMBER OF
NAME AND ADDRESS OF NUMBER OF PERCENTAGE SHARES AND PERCENTAGE OF
BENEFICIAL OWNER SHARES AND CLASS(1) OF CLASS(1)(2) SERIES CLASS(3)
- --------------------------------------- ----------------------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Petrowax Equity Partners I,
L.P.(4)(5)............................ 535,715 Class A 100.0% 58,928 Series B 71.4%
Petrowax Equity Partners II,
L.P.(4)(5)............................ 142,857 Class B 100.0 15,714 Series B 19.0
Petrowax Equity Partners III,
L.P.(4)(5)............................ 35,714 Class C 50.0 3,929 Series B 4.8
Petrowax Equity Partners IV,
L.P.(4)(5)............................ 35,713 Class C 50.0 3,929 Series B 4.8
UBS Partners LLC....................... 409,090 Class C(6) 85.1 142,500 Series A 100.0
299 Park Avenue,
New York, NY 10171-0026
Alan J. Andreini (7)................... -- -- -- --
Richard R. Crowell (4)................. -- -- -- --
John F. Gottshall (10)................. 4,090 Class D(9) 100.0 -- --
Mark C. Hardy (4)...................... -- -- -- --
David E. Hawkins (10).................. 2,728 Class D(9) 100.0 -- --
Joseph C. Houssa (8)................... 4,090 Class D(9) 100.0 -- --
Justin S. Maccarone (11)............... -- -- -- --
Gerald L. Parsky (4)(5)................ 535,715 Class A 100.0 82,500 Series B 100.0
142,857 Class B 100.0
71,427 Class C 100.0
Richard K. Roeder (4).................. -- -- -- --
Charles E. Sax (10).................... -- -- -- --
C. Richard Spalton (8)................. 13,636 Class D(9) 100.0 -- --
Boyd D. Wainscott (10)................. 32,728 Class D(9) 100.0 -- --
W. Montague Yort (4)................... -- -- --
All directors and officers as a group
(19 persons).......................... 537,715 Class A 100.0 82,500 100.0%
142,857 Class B 100.0
71,427 Class C 100.0
64,910 Class D(9) 100.0
</TABLE>
- --------------------------
(1) The shares of Common Stock underlying options and warrants that are
exercisable as of May 31, 1997 or that will become exercisable within 60
days thereafter are deemed to be outstanding for the purpose of calculating
the beneficial ownership of the holder of such options and warrants, but are
not deemed to be outstanding for the purpose of computing the beneficial
ownership of any other person. As a result, the aggregate percentage
ownership of a particular class of Common Stock may exceed 100.0%.
(2) The percentages shown are with respect to the individual classes of Common
Stock.
(3) Percentages shown are with respect to the Series A Preferred Stock and the
Series B Preferred Stock of the Parent.
(4) The address of such beneficial holder is 1800 Century Park East, Suite 1000,
Los Angeles, California 90067.
33
<PAGE>
(5) The general partner of each of Petrowax Equity Partners I L.P., Petrowax
Equity Partners II L.P., Petrowax Equity Partners III L.P. and Petrowax
Equity Partners IV L.P. (collectively, the "Investment Partnerships") is CC
1800, the sole limited partner of which is Gerald L. Parsky and the general
partner of which is Century City 1800 Management Partners L.P., a Delaware
limited partnership ("CCMP"). The sole limited partner of CCMP is Mr. Parsky
and its general partner is a Delaware corporation which is wholly owned by
Mr. Parsky. In view of Mr. Parsky's dispositive power over shares of Common
Stock and Preferred Stock owned by each of the Investment Partnerships, Mr.
Parsky may be deemed to beneficially own all the shares of Common Stock and
Preferred Stock owned by each of the Investment Partnerships.
(6) Represents shares of Class C Common Stock issuable upon the exercise of
409,090 warrants that are immediately exercisable at $10.64 per share.
(7) Mr. Andreini is a limited partner of Petrowax Equity Partners III, L.P.
(8) The address of such beneficial holder is Tavistock Road, West Drayton,
Middlesex, UB7 7 RA England.
(9) Represents shares of Class D Common Stock issuable upon the exercise of
options granted under the Stock Incentive Plan, including options which will
become exercisable within 60 days after May 31, 1997, as follows: Mr.
Gottshall, 2,045 shares; Mr. Hawkins, 1,365 shares; Mr. Houssa, 2,045
shares; Mr. Spalton, 6,818 shares; and Mr. Wainscott, 16,364 shares.
(10) The address of such beneficial holder is 8521 Six Forks Road, Suite 105,
Raleigh, North Carolina 27615.
(11) Mr. Maccarone is a director of UBS Partners, the beneficial owner of
142,500 shares of Series A Preferred Stock of the Company and warrants to
purchase 409,090 shares of Class C Common Stock.
The holders of Class A Common Stock, Class B Common Stock and Class C Common
Stock are entitled to one vote per share on all matters submitted to a vote of
stockholders, except that the holders of Class A Common Stock voting as a
separate class are entitled to elect five directors of the Parent, the holders
of Class B Common Stock voting as a separate class are entitled to elect five
directors of the Parent and the holders of Class C Common Stock voting as a
separate class are entitled to elect one director of the Parent. The Class D
Common Stock is nonvoting except as may otherwise be required by applicable law.
The Series A Preferred Stock and Series B Preferred Stock of the Parent are
generally nonvoting except as may otherwise be required by applicable law.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company believes the transactions described below that were entered into
by the Company and its subsidiaries were beneficial to the respective companies,
and were no less favorable to the respective companies than could have been
obtained from unaffiliated third parties pursuant to arms-length negotiations.
TRANSACTIONS WITH CC 1800 AND ITS AFFILIATES
CC 1800 has entered into a Management Services Agreement with the Parent and
UBS Capital pursuant to which CC 1800 earns management fees from the Parent in
the amount of approximately $412,000 annually. These management fees are subject
to annual increases to reflect increases in the Consumer Price Index. Under the
terms of the Management Services Agreement, the Parent will also (i) pay CC 1800
a transaction fee equal to 1.4% of the aggregate acquisition consideration in
connection with merger and acquisition services rendered in connection with
acquisitions made by the Parent or any of the Parent's affiliates in which the
Parent has an ownership interest and (ii) reimburse CC 1800 for all reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under the Management Services Agreement. Concurrently with the
consummation of the Note Offering and the ADCO Acquisition, the Company paid CC
1800 a closing fee of $761,800 for financial advisory services. The Management
Services Agreement also provides that the Parent will provide CC 1800 and its
directors, officers, employees, partners and affiliates with customary
indemnification against all actions not
34
<PAGE>
involving gross negligence or willful misconduct, or in criminal proceedings, if
there was no reasonable cause to believe the alleged conduct was unlawful.
Historically, the Company has paid certain administrative expenses of the
Investment Partnerships aggregating less than $28,000 annually and expects to
continue to pay such expenses in the future.
TRANSACTIONS WITH UBS AND ITS AFFILIATES
In connection with the acquisition of ABI, UBS, an affiliate of UBS
Partners, provided $77.5 million to the Company consisting of a term loan
facility in the amount of $57.5 million and a revolving credit facility in the
amount of $20.0 million (the "UBS Credit Facility"). The outstanding
indebtedness under the UBS Credit Facility was repaid upon the consummation of
the ADCO Acquisition out of a portion of the proceeds raised from the Note
Offering. The term loan had a maturity of seven years, with a stated
amortization schedule and an additional annual paydown based on cash flow. The
outstanding principal balance of the term loan facility bore interest at the per
annum rate of LIBOR plus 2.25%. The revolving facility had a term of seven
years, with all outstanding principal to be paid at maturity. The outstanding
principal balance of the revolving facility bore interest at a per annum rate
equal to LIBOR plus 2.25%. The loans were secured by substantially all of the
assets of Astor Corporation.
UBS Capital is a party to the Parent's Management Services Agreement with CC
1800. Under the terms of the Management Services Agreement, the Parent will (i)
pay to UBS Capital a transaction fee equal to 0.6% of the aggregate acquisition
consideration for merger and acquisition services rendered in connection with
acquisitions made by the Parent or any of the Parent's affiliates in which the
Parent has an ownership interest and (ii) reimburse UBS Capital for all
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of its obligations under the Management Services Agreement.
Concurrent with the consummation of the Note Offering and the ADCO Acquisition,
the Parent paid UBS Capital a closing fee of $326,500 for financial advisory
services. The Management Services Agreement also provides that the Parent shall
provide UBS Capital and its directors, officers, employees, partners and
affiliates with customary indemnification against all actions not involving
gross negligence or willful misconduct, or in criminal proceedings, if there was
no reasonable cause to believe the alleged conduct was unlawful.
RHEOCHEM
In April 1997 the Company purchased for $14,100,00 in cash from Thomas C.
Pedersen and members of his immediate family all the outstanding capital stock
of Rheochem, Incorporated ("RCI"), whose sole asset was the 50% equity interest
in Rheochem not already owned by the Company. Upon completion of the purchase,
Rheochem merged into RCI, and RCI merged into Astor Corporation. Thomas C.
Pedersen, who was President of Rheochem and RCI and the principal stockholder of
RCI, has entered into a four-year employment agreement with Astor Corporation to
serve as President of its Rheochem Technologies Division. During the 1997 fiscal
year the Company had sales of approximately $6,700,000 to Rheochem and received
a management fee of $1,643,000 for accounting services and technical support.
For the six months ended April 30, 1997, Rheochem paid a management fee of
$1,212,620 to RCI, and for the twelve months ended October 31, 1996 Rheochem
paid a management fee of $1,478,486 to RCI.
TAX SHARING AGREEMENT
The Parent intends to elect to file a consolidated Federal income tax return
which will include Astor Holdings II, Astor Corporation and its direct and
indirect subsidiaries. Under Federal tax law, Astor Holdings II, Astor
Corporation and each of its subsidiaries can be held severally liable for all
the Federal income tax liabilities with respect to each consolidated Federal
income tax return of the Parent in which Astor Holdings II, Astor Corporation or
its subsidiaries, respectively, are included.
35
<PAGE>
In order to allocate the tax liabilities among them, the Parent and its
subsidiaries have entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement"), which provides in general that, so long as the Parent is required
to file consolidated Federal income tax returns which include any of its
subsidiaries, each such subsidiary will be responsible for paying to the Parent
the Federal tax liability that would be payable by such subsidiary as though it
filed a consolidated Federal income tax return that included only such
subsidiary. Similar provisions will apply with respect to the filing of combined
or consolidated state income or franchise tax returns and the payment of tax on
such returns.
Under the Tax Sharing Agreement, the Parent will determine the reporting of
all items on its consolidated federal income tax returns and will be responsible
for all audits and controversies. The tax liability of Astor will be adjusted to
reflect adjustments resulting from resolved audits or other controversies and
appropriate payments or reimbursements will be made.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Index to Financial Statements, Financial Statement Schedules and Exhibits:
<TABLE>
<S> <C> <C>
1. Financial Statements Index
See Index to Financial Statements and Supplemental Data on page 25.
2. Financial Statement Schedules Index
II--Valuation and Qualifying Accounts...................................... S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(b) Reports on Form 8-K:
No report on Form 8-K has been filed by the Company during the last quarter
of the fiscal year ended March 31, 1997.
(c) Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K,
or are incorporated herein by reference to the previously filed document
identified in the parenthetical statement following the description of such
exhibit.
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
3.1 Certificate of Incorporation of Astor Holdings II, Inc. (Exhibit 3.3 to Astor Corporation's
Registration Statement (Commission File No. 333-14913) on Form S-4 (the "Form S-4"))..........
3.2 Bylaws of Astor Holdings II, Inc. (Exhibit 3.4 to the Form S-4).................................
4.1 Indenture dated October 8, 1996, by and among Astor Corporation, Astor Holdings II, Inc. and
State Street Bank and Trust Company, as trustee (Exhibit 4.1 to the Form S-4).................
10.1 Groundwater Processing Remediation Agreement dated April 22, 1994, by and between Petrowax PA,
Inc. and Quaker State Corporation (Exhibit 10.1 to the Form S-4)..............................
10.2 Asset Purchase and Sale Agreement dated as of March 30, 1990, by and between Petrowax PA, Inc.
and Quaker State Corporation, as amended (Exhibit 10.2 to the Form S-4).......................
10.3 Slack Wax and Petrolatum Sales Agreement dated April 22, 1994, by and between Petrowax PA, Inc.
and Quaker State Corporation (Exhibit 10.3 to the Form S-4)...................................
10.4 Amendment, Agreement and Joint Release dated April 22, 1994, by and between Petrowax PA, Inc.
and Quaker State Corporation (Exhibit 10.4 to the Form S-4)...................................
10.5 Management Services Agreement dated as of June 28, 1995, by and among Astor Holdings, Inc.,
Century City 1800 Partners L.P. and UBS Capital Corporation...................................
10.6 Stockholders Agreement dated as of June 28, 1995, by and among Astor Holdings, Inc. and certain
of its Stockholders, Optionholders and Warrantholders.........................................
10.7 Agreement and Plan of Merger dated as of July 12, 1996, by and among Astor Corporation, AAC
Acquisition Corp. and ADCO Technologies, Inc..................................................
10.8 Stock Purchase Agreement dated as of April 22, 1997, by and among Rheochem, Incorporated (RCI),
Thomas C. Pedersen and the other stockholders of RCI, Rheochem Technologies, Inc. and Astor
Corporation (Exhibit 2 to the Registrant's Current Report on Form 8-K dated June 30, 1997)....
10.9 Agreement dated as of October 1, 1996, by and between Lube & Wax Ventures, L.L.C. and Astor
Corporation (the "L & W Agreement") (Exhibit 10.6 to the Form S-4)............................
10.10 First Amendment dated as of October 24, 1996, to L & W Agreement (Exhibit 10.14 to the Form
S-4)..........................................................................................
10.11 Second Amendment dated as of December 1, 1996, to L & W Agreement (Exhibit 10.1 to the Quarterly
Report of Astor Holdings II, Inc. on Form 10-Q for the fiscal quarter ended December 31,
1997).........................................................................................
*10.12 Astor Holdings, Inc. 1995 Stock Incentive Plan (the "Stock Incentive Plan") and related form of
Stock Option Agreement (Exhibit 10.20 to the Form S-4)........................................
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
*10.13 Amendment No. 1 to the Stock Incentive Plan (Exhibit 10.21 to the Form S-4).....................
*10.14 Astor Corporation 1997 Management Bonus Program (Exhibit 10.8 to the Form S-4)..................
*10.15 Employment Agreement--Boyd D. Wainscott (Exhibit 10.13 to the Form S-4).........................
*10.16 Employment Agreement--C. Richard Spalton (Exhibit 10.14 to the Form S-4)........................
*10.17 Employment Agreement--Joseph C. Houssa (Exhibit 10.15 to the Form S-4)..........................
*10.18 Employment Agreement--John F. Gottshall (Exhibit 10.16 to the Form S-4).........................
*10.19 Employment Agreement--David E. Hawkins (Exhibit 10.17 to the Form S-4)..........................
*10.20 First Amendment to Employment Agreement - David E. Hawkins......................................
10.21 Credit Agreement (the "Credit Agreement") dated as of October 8, 1996, by and among Astor
Corporation, certain lenders and The Chase Manhattan Bank, as agent (Exhibit 10.18 to the Form
S-4)..........................................................................................
10.22 First Amendment to Credit Agreement.............................................................
10.23 Second Amendment to Credit Agreement............................................................
10.24 Form of Indemnification Agreement with directors and executive officers.........................
10.25 Purchase Agreement dated October 2, 1996, by and among Astor Corporation, Astor Holdings II,
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc. (Exhibit
1.1 to the Form S-4)..........................................................................
10.26 Registration Rights Agreement dated October 9, 1996, among Astor Corporation, Astor Holdings II,
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc. (Exhibit
4.2 to the Form S-4)..........................................................................
21 List of Subsidiaries of Astor Holdings II, Inc..................................................
23 Independent Auditors' Consent from Ernst & Young LLP relating to Astor Holdings II, Inc.........
24 Power of Attorney...............................................................................
27 Financial Data Schedule.........................................................................
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
No annual report covering the registrant's last fiscal year or proxy
material has been sent to security holders. Such a report is to be furnished to
security holders subsequent to the filing of the annual report on this Form
10-K.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized,
on June 30, 1997.
<TABLE>
<S> <C> <C>
ASTOR HOLDINGS, II INC.
By: /s/ BOYD D. WAINSCOTT
-----------------------------------------
Boyd D. Wainscott
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this annual report has been signed below by
the following persons on behalf of the Registrant in the capacities indicated on
June 30, 1997.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board of
/s/ BOYD D. WAINSCOTT Directors
- ------------------------------ and Chief Executive
Boyd D. Wainscott Officer (Principal
Executive Officer)
/s/ JOHN F. GOTTSHALL Chief Financial Officer
- ------------------------------ (Principal Financial and
John F. Gottshall Accounting Officer)
*
- ------------------------------ Director
Alan J. Andreini
*
- ------------------------------ Director
Richard R. Crowell
*
- ------------------------------ Director
Mark C. Hardy
*
- ------------------------------ Director
Justin S. Maccarone
*
- ------------------------------ Director
Gerald L. Parsky
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
Richard R. Roeder
*
- ------------------------------ Director
Charles E. Sax
*
- ------------------------------ Director
C. Richard Spalton
*
- ------------------------------ Director
W. Montague Yort
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN F. GOTTSHALL
-------------------------
John F. Gottshall
ATTORNEY-IN-FACT
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Astor Holdings II, Inc.
We have audited the accompanying consolidated balance sheets of Astor
Holdings II, Inc., as of March 31, 1997 and 1996, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
three years in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Astor Holdings II, Inc. at March 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Buffalo, New York
May 16, 1997
F-1
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 12,971,515 $ 1,156,622
Accounts receivable (net of allowance for doubtful accounts of $1,057,816 and
$725,638, respectively)...................................................... 29,978,756 23,810,998
Receivable from Rheochem Technologies, Inc..................................... 474,641 566,000
Inventory...................................................................... 28,974,241 18,586,188
Prepaid expenses............................................................... 2,183,930 1,754,867
Other current assets........................................................... 1,669,647 1,603,917
-------------- --------------
Total current assets............................................................. 76,252,730 47,478,592
Property, plant and equipment:
Land and improvements.......................................................... 8,399,651 7,441,900
Buildings and improvements..................................................... 12,989,776 7,078,157
Machinery and equipment........................................................ 60,838,116 40,895,658
-------------- --------------
Total cost....................................................................... 82,227,543 55,415,715
Less accumulated depreciation.................................................. (8,998,162) (4,461,309)
-------------- --------------
Property, plant and equipment--net............................................... 73,229,381 50,954,406
Investment in Rheochem Technologies, Inc......................................... 4,195,754 4,039,987
Goodwill......................................................................... 59,222,346 29,940,493
Other intangible assets.......................................................... 9,226,444 6,572,429
Deferred tax asset............................................................... -- 3,919,644
-------------- --------------
Total assets..................................................................... $ 222,126,655 $ 142,905,551
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 21,195,040 $ 16,271,224
Accrued interest payable....................................................... 5,976,259 815,953
Accrued wages and other payroll related items.................................. 3,280,321 1,408,614
Accrued vacation............................................................... 1,697,659 1,090,684
Accrued professional fees...................................................... 1,014,225 1,245,901
Other accrued liabilities...................................................... 4,023,336 2,024,471
Current portion of long-term debt.............................................. 1,491,912 4,746,683
-------------- --------------
Total current liabilities........................................................ 38,678,752 27,603,530
Long-term debt................................................................... 131,417,927 66,069,960
Due to affiliated company........................................................ 5,557,487 5,435,662
Deferred tax liability........................................................... 4,175,862 4,781,652
Other long-term liabilities...................................................... 3,398,208 2,657,076
Shareholder's equity:
Common stock:
Par value $.01 per share; authorized 10,000 shares; issued and outstanding,
1,000 shares in 1997 and 1996................................................ 10 10
Additional paid-in capital..................................................... 36,670,838 36,670,838
Retained earnings--net of transfer of $23,863,808 accumulated deficit as a
result of the March 31, 1996 quasi-reorganization............................ 2,710,766 --
Foreign currency translation adjustment........................................ (483,195) (313,177)
-------------- --------------
Total shareholder's equity....................................................... 38,898,419 36,357,671
-------------- --------------
Total liabilities and shareholder's equity....................................... $ 222,126,655 $ 142,905,551
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Sales............................................................ $197,000,022 $130,956,941 $58,728,091
Cost of goods sold............................................... 150,390,273 103,714,966 51,425,640
-------------- -------------- -------------
Gross profit before depreciation and amortization................ 46,609,749 27,241,975 7,302,451
Selling, general and administrative expenses..................... 22,113,978 13,767,202 4,132,225
Depreciation and amortization.................................... 7,891,854 5,416,228 1,992,559
-------------- -------------- -------------
Operating income................................................. 16,603,917 8,058,545 1,177,667
Income from Rheochem Technologies, Inc........................... 651,000 91,000 --
Interest expense................................................. (10,213,770) (5,251,079) (1,605,985)
Reorganization items............................................. -- (856,335) (1,087,944)
-------------- -------------- -------------
Income (loss) before taxes and extraordinary items............... 7,041,147 2,042,131 (1,516,262)
Provision for (benefit from) income taxes........................ 547,548 (3,434,166) --
-------------- -------------- -------------
Income (loss) before extraordinary items......................... 6,493,599 5,476,297 (1,516,262)
Extraordinary item--gain on cancellation of debt................. -- 44,933,236 --
Extraordinary item--loss on extinguishment of debt............... (3,782,833) -- --
-------------- -------------- -------------
Net income (loss)................................................ $2,710,766 $50,409,533 $(1,516,262)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED FOREIGN
STOCK COMMON STOCK ADDITIONAL CURRENCY RETAINED
------------------------ ------------------------ PAID-IN TRANSLATION EARNINGS
SENIOR JUNIOR CLASS A CAPITAL ADJUSTMENT (DEFICIT)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1994.............. $19,000,000 $10,000,000 $ 10 $ -- $ 1,157,924 $ -- $(72,757,079)
Net loss.............................. -- -- -- -- -- -- (1,516,262)
----------- ----------- ----- ----- ----------- ----------- -----------
Balance at March 31, 1995............. $19,000,000 $10,000,000 $ 10 $ -- $ 1,157,924 $ -- $(74,273,341)
Cancellation of shares upon adoption
of plan of reorganization........... (19,000,000) (10,000,000) (10) -- 29,000,010 -- --
Sale of common stock.................. -- -- -- 10 30,376,712 -- --
Net income............................ -- -- -- -- -- -- 50,409,533
Foreign currency translation
adjustment.......................... -- -- -- -- -- (313,177) --
Effect of quasi-reorganization as of
March 31, 1996...................... -- -- -- -- (23,863,808) -- 23,863,808
----------- ----------- ----- ----- ----------- ----------- -----------
Balance at March 31, 1996............. $ -- $ -- $ -- $ 10 $36,670,838 $(313,177) $ --
Net income............................ -- -- -- -- -- -- 2,710,766
Foreign currency translation
adjustment.......................... -- -- -- -- -- (170,018) --
----------- ----------- ----- ----- ----------- ----------- -----------
Balance at March 31, 1997............. $ -- $ -- $ -- $ 10 $36,670,838 $(483,195) $ 2,710,766
----------- ----------- ----- ----- ----------- ----------- -----------
----------- ----------- ----- ----- ----------- ----------- -----------
<CAPTION>
TOTAL
SHAREHOLDER'S
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at April 1, 1994.............. $(42,599,145)
Net loss.............................. (1,516,262)
-------------
Balance at March 31, 1995............. $(44,115,407)
Cancellation of shares upon adoption
of plan of reorganization........... --
Sale of common stock.................. 30,376,722
Net income............................ 50,409,533
Foreign currency translation
adjustment.......................... (313,177)
Effect of quasi-reorganization as of
March 31, 1996...................... --
-------------
Balance at March 31, 1996............. $36,357,671
Net income............................ 2,710,766
Foreign currency translation
adjustment.......................... (170,018)
-------------
Balance at March 31, 1997............. $38,898,419
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................... $ 2,710,766 $50,409,533 $(1,516,262)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization........................................... 7,891,854 5,416,228 1,992,559
Income from debt cancellation........................................... -- (44,933,236) --
Loss from extinguishment of debt........................................ 5,746,379 -- --
Equity in income of Rheochem Technologies,Inc........................... (651,000) (91,000) --
Amortization of discount on bonds....................................... 25,119 -- --
Changes in operating assets and liabilities (net of businesses acquired
in 1997 and 1996):
Decrease in cash escrow............................................... -- 102,169 25,082
Decrease (increase) in accounts receivable............................ 1,295,627 (2,322,833) (921,870)
Decrease (increase) in receivable from Rheochem Technologies, Inc..... 91,359 (566,000) --
Increase in inventory................................................. (3,228,806) (17,668) (290,077)
(Increase) decrease in prepaid expenses and other current assets...... (81,325) 641,478 472,402
Decrease in deposits.................................................. -- 51,000 --
Increase in accounts payable.......................................... 2,108,039 1,326,103 1,161,213
(Decrease) increase in accrued reorganization costs................... -- (1,008,019) 192,452
Decrease in deferred taxes............................................ (2,224,464) (4,452,809) --
Decrease in other long-term liabilities............................... (339,222) (508,000) --
Increase in accrued interest payable.................................. 5,150,449 335,854 603,593
Decrease in accrued expenses (99,775) (3,026,198) (860,225)
----------- ----------- ----------
Subtotal.............................................................. 2,671,882 (9,444,923) 382,570
----------- ----------- ----------
Net cash provided by operating activities................................. 18,395,000 1,356,602 858,867
INVESTING ACTIVITIES
Additions to property, plant and equipment................................ (4,889,231) (4,639,815) (273,979)
Acquisition of business, net of cash acquired of $1,890,134 and $1,510,342
in 1997 and 1996, respectively.......................................... (53,545,365) (60,830,982) --
Decrease in restricted cash............................................... -- 175,000 --
Dividends received........................................................ 247,500 110,000 --
----------- ----------- ----------
Net cash used in investing activities..................................... (58,187,096) (65,185,797) (273,979)
FINANCING ACTIVITIES
Capital lease payments.................................................... (133,552) (95,040) (113,594)
Deferred debt issuance costs.............................................. (8,920,814) (6,800,561) --
Proceeds from long-term debt.............................................. 130,499,475 70,321,438 --
Payments of long-term debt................................................ (69,674,058) (26,656,840) --
Issuance of stock, net of fees............................................ -- 30,376,722 --
Decrease in PCDR inventory financing...................................... -- (3,600,000) --
Decrease in due to affiliate.............................................. (295,893) (272,276) --
----------- ----------- ----------
Net cash provided by (used in) financing activities....................... 51,475,158 63,273,443 (113,594)
Effect of exchange rate changes on cash and cash equivalents.............. 131,831 993,630 --
----------- ----------- ----------
Net increase in cash and cash equivalents................................. 11,814,893 437,878 471,294
Cash and cash equivalents at beginning of period.......................... 1,156,622 718,744 247,450
----------- ----------- ----------
Cash and cash equivalents at end of period................................ $12,971,515 $ 1,156,622 $ 718,744
----------- ----------- ----------
----------- ----------- ----------
Supplementary cash flows data:
Interest paid........................................................... $ 4,834,370 $ 5,052,805 $1,002,000
Income taxes paid....................................................... $ 1,540,352 $ 2,411,362 --
Noncash investing and financing activities:
Assets acquired by incurring notes payable.............................. -- $ 5,945,940 --
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Astor Holdings II, Inc. ("Astor Holdings II") is a wholly-owned subsidiary
of Astor Holdings, Inc. ("Astor Holdings") and a holding company of Astor
Corporation. Astor Holdings II's operations primarily include the manufacturing
of specialty wax products and adhesives and sealants for sale to end users in a
diverse range of industries both domestically and internationally, whose
applications require specialized products and blends. Astor Holdings II performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
Astor Corporation was incorporated in 1989 as Petrowax PA Inc. ("Petrowax").
On June 28, 1995 certain investors (including certain former stockholders of
Petrowax) contributed $30.7 million to capitalize Astor Holdings which then
capitalized Astor Holdings II. Astor Holdings II then acquired shares of common
stock of Petrowax for $10 million, and the shares of common stock held by the
former stockholders of Petrowax were cancelled for no consideration. As a
result, Astor Corporation is a wholly-owned subsidiary of Astor Holdings II.
There was deemed to be no change of control resulting from this series of
transactions. Petrowax had operated as a debtor in possession under Chapter 11
of the United States Bankruptcy Code from February 1992 until June 1995.
Effective June 28, 1995, Petrowax emerged from bankruptcy. The funds necessary
to pay claims in accordance with Petrowax's plan of reorganization
("Reorganization Plan") were generated from the $10 million capital contribution
noted above and term loan borrowings of $14 million. As a result of implementing
the Reorganization Plan, Petrowax recorded a gain on the forgiveness of debt of
$44.9 million, net of the write-off of related deferred financing costs of $1.6
million. The net gain has been recorded as an extraordinary item in the
accompanying 1996 statement of operations. Subsequent to the implementation of
the Reorganization Plan, Petrowax's name was changed to Astor Corporation.
2. ACQUISITIONS
On October 8, 1996, Astor Corporation purchased 100% of the outstanding
capital stock and issued and unexercised stock options of Adco Technologies,
Inc. ("ADCO") for cash of approximately $54.4 million and expenses of
approximately $1 million using proceeds from a debenture offering. ADCO is a
domestic producer of adhesives and sealants primarily for the roofing,
automotive original equipment manufacturing, windshield replacement, window
manufacturing, and concrete pipe and vault markets.
On June 28, 1995, Astor Holdings II, through its wholly-owned subsidiaries,
purchased 100% of the outstanding stock of Associated British Industries Limited
("ABI") for cash of $57.4 million plus expenses of $5.0 million and notes of
$5.9 million. ABI is a United Kingdom manufacturer of petroleum wax blends and
adhesives and sealants marketed to end users located throughout the world.
The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The operating results of the acquired businesses have been included
in the consolidated statements of operations from the dates of the acquisitions.
If the ADCO acquisition had taken place at the beginning of fiscal 1997 rather
than October 8, 1996, pro forma consolidated net sales would have been $226.5
million for fiscal 1997. Consolidated pro forma income before extraordinary
items would have been $7.1 million for fiscal 1997. If the ADCO and ABI
acquisitions had taken place at the beginning of fiscal 1996, pro forma
consolidated net sales would have been $201.3 million and pro forma consolidated
income before extraordinary item would have been $5.1 million for fiscal 1996.
Such pro forma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions had been
effective at the beginning of fiscal 1996 or 1997.
F-6
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. QUASI-REORGANIZATION
Effective March 31, 1996, having attained consistent earnings for the
nine-month period since its emergence from bankruptcy, Astor Holdings II, with
shareholder approval, effected a quasi-reorganization. Astor Holdings II
revalued its assets and liabilities resulting in no significant adjustments to
the financial statements and transferred its retained earnings deficit of $23.9
million to additional paid-in capital. As a result, retained earnings has a zero
balance at March 31, 1996 and in the future will represent accumulated earnings
from that date forward.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Astor Holdings
II and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORY
Inventory is stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method of inventory valuation.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less the recognition of
permanent impairment and depreciation recorded subsequent to such recognition.
Depreciation is provided principally on the straight-line method over the
respective estimated useful lives of the assets. The estimated useful lives of
buildings are 20 to 50 years and the estimated useful lives of machinery and
equipment are generally 10 to 16 years. Capital leases are amortized over the
estimated useful life of the asset or lease term, as appropriate, using the
straight-line method. Depreciation expense includes amortization of assets
recorded under capital leases. For income tax purposes, accelerated methods of
depreciation are used. Depreciation expense for the years ended March 31, 1997,
1996 and 1995 was approximately $5,039,000, $3,528,000 and $1,078,000,
respectively.
DEFERRED COSTS
The costs related to the issuance of debt and certain organizational costs
of Astor Holdings II have been deferred and are being amortized on a
straight-line basis over 6 and 10 years, which are the lives of the term loan
facility and the Senior Subordinated Notes, and 5 years for organization costs,
respectively. The straight-line method of amortization is materially the same as
the effective interest method.
GOODWILL
Goodwill represents the excess of acquisition cost over the value of net
assets acquired and is being amortized over periods of 25 years related to ABI
and 40 years related to ADCO. At March 31, 1997 and 1996, accumulated
amortization amounted to approximately $2,542,000 and $926,000, respectively.
The carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, Astor Holdings II's carrying
value of the goodwill will be reduced by the estimated shortfall of cash flows.
REVENUE RECOGNITION
Revenue is recognized when products are delivered or when title is passed to
the customers.
F-7
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the majority of Astor Holdings II's and its
subsidiaries' foreign operations is the applicable local currency. The
translation from the applicable foreign currency to U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. Translation adjustments resulting from such
translation are included as a separate component of shareholder's equity. Gains
or losses resulting from foreign currency transactions are included in income.
CASH EQUIVALENTS
Astor Holdings II considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
INCOME TAXES
Astor Holdings II accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME
TAXES. Under SFAS 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect of a change in tax rates is recognized in the period that includes the
enactment date.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Research
and development expenses approximated $2,068,000 and $903,000 in the years ended
March 31, 1997 and 1996, respectively. No research and development expense was
incurred prior to fiscal year 1996.
STOCK OPTIONS
Astor Holdings II has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB
25"), and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair market value of Astor
Holdings' stock at the date of grant over the amount an employee must pay to
acquire the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In estimating the fair value of its fixed rate long-term debt instruments,
Astor Holdings II used a discounted cash flow analysis, based upon the current
incremental borrowing rate for similar types of borrowing arrangements. At March
31, 1997 and 1996, the carrying amounts of debt instruments approximate fair
value.
INTEREST RATE SWAP AGREEMENTS
Astor Holdings II periodically enters into interest rate swap agreements.
The interest rate differential to be received or paid is recognized over the
lives of the agreements as an adjustment to interest expense. There were no
interest rate swap agreements in place at March 31, 1997.
F-8
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CRUDE OIL SWAP CONTRACTS
Astor Holdings II periodically enters into price swap contracts to fix the
purchase price of crude oil. The contracts are intended to mitigate the impact
of market fluctuations related to the cost of crude oil on feedstock costs.
Gains and losses on the contracts are deferred and are recognized in income
during the periods affected. There were no crude oil swap agreements in place at
March 31, 1997.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
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"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. Astor Holdings II adopted SFAS 121
effective April 1, 1996. The adoption of the accounting standard had no impact
on Astor Holdings II's results of operations or financial position.
RECLASSIFICATION OF PRIOR YEAR FINANCIAL STATEMENTS
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
5. INVENTORY
Inventory consists of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials............................................................ $ 12,585,952 $ 7,428,538
Work-in-process.......................................................... 4,844,392 4,761,551
Finished goods........................................................... 12,568,134 6,766,970
Allowance for inventory obsolescence..................................... (1,024,237) (370,871)
------------- -------------
$ 28,974,241 $ 18,586,188
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Patents..................................................................... $ 370,125 $ --
Trade names................................................................. 515,113 479,986
Deferred organization costs................................................. 55,742 24,482
Deferred debt issuance costs................................................ 8,920,814 6,800,561
------------ ------------
9,861,794 7,305,029
Less accumulated amortization............................................... (635,350) (732,600)
------------ ------------
$ 9,226,444 $ 6,572,429
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the years ended March 31, 1997, 1996 and 1995 was
$1,122,000, $732,600 and $915,000, respectively. During the fiscal year ended
March 31, 1996, the $1,789,547 deferred debt issuance costs that remained
unamortized at March 31, 1995 were written off upon the emergence of Petrowax
from bankruptcy and concurrent forgiveness of debt. In addition, during the
fiscal year ended March 31, 1996, $6,800,561 of deferred debt issuance costs
were recorded in connection with Astor Corporation's incurrence of debt related
to the emergence from bankruptcy and the acquisition of ABI. The unamortized
balance of such costs, which amounted to $5,746,379, was subsequently written
off upon the repayment of the related debt with the proceeds from the issuance
of the 10 1/2% Senior Subordinated Notes in the fiscal year ended March 31,
1997. The write-off was recorded as an extraordinary item in the accompanying
statement of operations, net of an income tax benefit of $2,244,740. In
addition, during the fiscal year ended March 31, 1997, $8,920,814 of deferred
debt issuance costs were recorded in connection with Astor Corporation's
issuance of the 10 1/2% Senior Subordinated Notes and refinancing under the
Senior Secured Credit Agreement ("Senior Bank Facility") with The Chase
Manhattan Bank ("Chase").
F-10
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt at March 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Senior Secured Term Note payable to Chase denominated in Eurosterling in an amount
of L12,779,553 at March 31, 1997. The term note matures on October 1, 2002.
Interest is set at the Eurosterling Rate plus 2.5% (9.0675% at March 31, 1997)
and is payable quarterly commencing January 1, 1997. Principal is repayable in
21 quarterly installments of varying amounts, ranging from L239,617 to L958,466
(or $392,852 to $1,571,405, respectively), commencing on October 1, 1997........ $ 20,952,077 $ --
10 1/2% Series B Senior Subordinated Notes due October 15, 2006. Interest is due
on October 15 and April 15 of each year, commencing on April 15, 1997........... 109,475,119 --
Term Note payable to Union Bank of Switzerland ("UBS") up to $37,500,000 plus
L12,500,000 ($19,096,250) in the aggregate. Principal due in equal quarterly
payments commencing December 28, 1995 through June 28, 2002 plus interest at a
LIBOR based rate plus 2.25%. This note was repaid during the year ended March
31, 1997........................................................................ -- 54,959,916
Revolving Credit Note payable to UBS up to $20,00,000 in the aggregate. Interest
set at prime plus 1%, or a LIBOR based rate plus 2.25%. This note was repaid
during the year ended March 31, 1997............................................ -- 13,466,480
Swing Line Credit Note payable to UBS. Interest at prime plus 1.75%. This note was
repaid during the year ended March 31, 1997..................................... -- 700,000
Subordinated environmental notes payable to Quaker State Corporation. Principal
due in equal quarterly installments commencing on July 1, 1999 through December
31, 2008. Interest due monthly at the rate of 9% (see Note 13).................. 251,477 148,097
Obligations under capital leases.................................................. 51,711 172,430
Mortgage.......................................................................... 150,000 150,000
Revolving lines of credit......................................................... 2,029,455 1,219,720
-------------- -------------
Long-term debt.................................................................... 132,909,839 70,816,643
Less current portion.............................................................. (1,491,912) (4,746,683)
-------------- -------------
$ 131,417,927 $ 66,069,960
-------------- -------------
-------------- -------------
</TABLE>
On October 8, 1996, Astor Corporation entered into the Senior Bank Facility
with Chase, which includes a term loan facility and a revolving credit facility.
The term loan facility is denominated in Eurosterling in an amount not
exceeding the U.S. dollar equivalent of $20.0 million at the closing date. These
proceeds were lent by Astor Corporation to Astor Stag Ltd. and used to repay UBS
existing indebtedness of Astor Stag Ltd. and ABI Acquisition 2 plc ("ABI AII"),
both of which are subsidiaries of Astor Corporation based in the U.K.
F-11
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
The revolving credit facility is in an amount not to exceed the U. S. dollar
equivalent of $30.0 million which will be available in U.S. dollars or
Eurosterling. Subject to the satisfaction of customary conditions and meeting
certain borrowing base requirements, advances may be made at any time prior to
October 1, 2002 to be used (i) to finance permitted acquisitions, (ii) to
refinance existing indebtedness of Astor Corporation, ABI AII and Astor Stag
Ltd. and (iii) to finance the working capital needs of Astor Corporation and its
subsidiaries. Up to $10.0 million of the revolving credit facility will be
available for letters of credit, of which $5,044,527 were outstanding at March
31, 1997. Astor Corporation is obligated to pay commitment fees, which equal
1/2% per annum, on the unused amount of the revolving credit facility. At March
31, 1997, there were no outstanding revolving credit borrowings under the Senior
Bank Facility.
The Senior Bank Facility is secured by a first priority security interest in
all assets of Astor Corporation, all of the capital stock of Astor Holdings II,
all of the capital stock of Astor Corporation's direct and indirect U.S.
subsidiaries, 65% of the voting capital stock and all but one share of the
non-voting capital stock of ABI AII and all of the capital stock of Astor
Corporation. The obligations of Astor Corporation under the Senior Bank Facility
are guaranteed on a senior secured basis by each of Astor Corporation's existing
and future U.S. subsidiaries.
The Senior Bank Facility contains extensive affirmative and negative
covenants, including, among others, covenants relating to leverage, interest and
fixed charge coverage and certain limits on, among other things, the ability of
Astor Corporation to incur indebtedness, make capital expenditures, create
liens, engage in mergers and consolidations, and make restricted payments. The
Senior Bank Facility also limits the ability of Astor Holdings II to pay
dividends to Astor Holdings. Effectively, Astor Holdings II is limited to paying
dividends to Astor Holdings as is necessary for Astor Holdings to pay the amount
due under its management agreement as noted in Note 15. As of March 31, 1997,
Astor Corporation and Astor Holdings II were in compliance with these covenants.
On October 8, 1996, Astor Corporation issued $110.0 million of 10 1/2%
Senior Subordinated Notes Due 2006 (the "Old Notes") with an original issue
discount of $550,000, which is being amortized to interest expense over the life
of the notes. The proceeds were used to provide financing for the ADCO
acquisition and the repayment of outstanding indebtedness to UBS. Interest on
the notes is payable semi-annually on October 15 and April 15 of each year,
commencing on April 15, 1997. The notes will mature on October 15, 2006. This
sale was not registered under the Securities Act of 1933 (the "Securities Act")
in reliance upon the exemption provided by Rule 144A promulgated under the
Securities Act. On January 21, 1997, Astor Corporation exchanged the Old Notes
for 10 1/2% Series B Senior Subordinated Notes Due 2006 (the "Notes"), which
were registered with the Securities and Exchange Commission. The Notes, unlike
the Old Notes, are expected to be freely transferable at all times. With the
exception of the freely transferable nature of the Notes, the Notes are
substantially identical to the Old Notes.
The Notes are fully and unconditionally guaranteed on a senior subordinated
basis by Astor Holdings II and future U.S. subsidiaries, if any, of Astor
Corporation. The indenture governing the Notes contains certain covenants that
impose limitations on, among other things, (i) the incurrence of additional
indebtedness by Astor Corporation, any restricted subsidiary and Astor Holdings
II, (ii) the issuance of disqualified stock, (iii) the making of certain
restricted payments, (iv) the payment of dividends or other payments affecting
subsidiaries, (v) layering, (vi) the incurrence of liens, (vii) transactions
with affiliates and (viii) the consummation of certain mergers, consolidations
or sales of assets. As of March 31, 1997, Astor Corporation was in compliance
with these covenants.
F-12
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Scheduled maturities on long-term debt for each of the next five years as of
March 31, 1997 and thereafter are as follows:
<TABLE>
<S> <C>
Year ending March 31,
1998................................................................ $ 1,491,912
1999................................................................ 1,837,102
2000................................................................ 3,164,702
2001................................................................ 4,742,926
2002................................................................ 5,135,999
Thereafter.......................................................... 116,537,198
-----------
$132,909,839
-----------
-----------
</TABLE>
8. LEASES
Astor Holdings II is obligated under noncancelable operating leases expiring
on various dates through June 30, 2003. Future minimum annual lease payments as
of March 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending March 31,
1998................................................................ $ 1,893,035
1999................................................................ 1,431,156
2000................................................................ 1,072,145
2001................................................................ 943,455
2002................................................................ 855,908
Thereafter.......................................................... 1,064,385
</TABLE>
Rent expense for all operating leases was approximately $1.9 million, $1.6
million and $1.4 million for the years ended March 31, 1997, 1996 and 1995,
respectively.
F-13
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS
Under Astor Holdings' 1995 Option Incentive Plan, as amended in January
1997, (the "Plan") 228,545 shares of Astor Holdings' Class D common stock were
reserved for the grant of stock options to directors, employees and consultants.
Options are granted at an exercise price of not less than $10 per share and on
such other terms and conditions as the Compensation Committee of the Board of
Directors may determine. No stock options may be granted under the Plan after
June 28, 2005, and no Class D common shares may be issued after June 28, 2015.
Options to purchase a total of 216,640 common shares have been granted to
employees. Employee stock options become exercisable in five equal annual
installments, subject to the satisfaction of performance conditions, which may
be waived by the Compensation Committee. Options to purchase a total of 11,905
common shares have been granted to consultants, all of which became exercisable
at the date of grant. No further shares are available for grant under the Plan.
Astor Holdings II has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB 25 and related
interpretations. Astor Holdings II recognized no compensation cost for
stock-based employee compensation awards in the years ended March 31, 1997 and
1996. Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123") requires companies that do not adopt the
new fair value accounting rules to disclose pro forma net income under the new
method. If the fair value method accounting provisions of SFAS 123 had been
adopted at the beginning of fiscal year 1996, net income would have been
$2,595,000 and $50,301,000 for fiscal years 1997 and 1996, respectively. The
fair value of these options was estimated at the date of grant using the Minimum
Value option pricing model. A risk-free interest rate of return equal to the
rate currently available for zero-coupon U.S. government issues with a remaining
term equal to the expected life of the options was used to determine the fair
value. The risk free interest rate utilized was 6.67% and 6.10% for options
granted in the years ended March 31, 1997 and 1996, respectively. Other
significant assumptions used include an expected life of 10 years and expected
dividend yield of 0%.
A summary of Astor Holdings' stock option activity and related information
for the years ended March 31 follows:
<TABLE>
<CAPTION>
1996 1997
--------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding--beginning of year...... -- $ -- 204,545 $ 10.00
Granted............................. 204,545 10.00 24,000 15.00
Exercised........................... -- -- -- --
Forfeited........................... -- -- -- --
Expired............................. -- -- -- --
--------- ---------
Outstanding--end of year............ 204,545 $ 10.00 228,545 $ 10.53
--------- ---------
--------- ---------
Exercisable at end of year.......... 10,905 $ 10.00 50,633 $ 10.10
--------- ---------
--------- ---------
</TABLE>
The weighted-average fair value of each option on the date of grant was
$7.30 and $4.57 for those options granted in the years ended March 31, 1997 and
1996, respectively.
F-14
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
A summary of information regarding the options outstanding at March 31, 1997
follows:
<TABLE>
<S> <C>
$10.00 -
Range of exercise prices.................................... $15.00
Weighted-average exercise price............................. $10.53
Weighted-average remaining contractual life................. 8.4 years
</TABLE>
10. INCOME TAXES
The components of income before taxes and extraordinary items are as follows
at March 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Domestic.......................................... $ 7,625,311 $ 2,053,901 $ (1,516,262)
Foreign........................................... (584,164) (11,770) --
------------ ------------ --------------
$ 7,041,147 $ 2,042,131 $ (1,516,262)
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
In 1995, no provision for federal income taxes was recorded as Astor
Holdings II incurred net losses for financial reporting as well as income tax
purposes. Income tax expense (credits) consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current:
Federal....................................................... $ 1,229,013 $ 339,350
State......................................................... 200,543 312,520
Foreign....................................................... 1,221,875 200,662
Deferred:
Federal....................................................... (120,186) (4,865,981)
State......................................................... (564,197) 946,337
Foreign....................................................... (1,419,500) (367,054)
------------- -------------
$ 547,548 $ (3,434,166)
------------- -------------
------------- -------------
</TABLE>
F-15
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
Deferred taxes available to Astor Holdings II as of March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment....................... $ (9,696,079) $ (4,026,115) $ (4,229,030) $ (4,156,585)
Intangible assets................................... -- (140,156) -- (881,000)
Other............................................... -- (147,256) (8,231) (135,110)
------------- ------------- ------------- -------------
$ (9,696,079) $ (4,313,527) $ (4,237,261) $ (5,172,695)
Deferred tax assets:
Federal net operating loss carryforward............. $ 7,257,648 $ -- $ 8,413,560 $ --
Accounts receivable................................. 83,330 38,448 145,278 70,704
Inventory........................................... 197,235 10,487 32,000 88,434
Accrued expenses and other long-term liabilities.... 1,264,278 70,335 1,151,067 231,905
Deferred interest................................... -- 704,905 -- --
Other............................................... 207,078 -- -- --
Valuation allowance................................. -- -- (1,585,000) --
------------- ------------- ------------- -------------
$ 9,009,569 $ 824,175 $ 8,156,905 $ 391,043
------------- ------------- ------------- -------------
Net deferred taxes.................................... $ (686,510) $ (3,489,352) $ 3,919,644 $ (4,781,652)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
At March 31, 1997, Astor Holdings II had an operating loss carryforward for
tax reporting purposes of approximately $22 million, expiring in years 2007
through 2009, which is available to offset future federal taxable income. The
utilization of the net operating losses would be limited under Section 382 of
the Internal Revenue Code (the "Code") if Astor Corporation were to undergo, or
is deemed to have previously undergone, an ownership change. Although Astor
Holdings II has completed transactions that have involved substantial changes to
its equity ownership, Astor Holdings II believes that an ownership change, as
defined by the Code, has not occurred since June 1991.
Astor Holdings II had incurred operating losses through fiscal year 1995
and, therefore, had recorded a valuation allowance for the entire deferred tax
asset. In fiscal year 1996, as a result of several positive factors, Astor
Holdings II determined it could eliminate the valuation allowance, with the
exception of approximately $4.6 million of net operating losses generated prior
to the June 1991 change in control which could potentially be subject to annual
limitation of future use. The deferred tax asset related to these June 1991 and
prior net operating losses had been offset by a valuation allowance of
$1,585,000 as of March 31, 1996. The positive factors included the emergence
from bankruptcy, the achievement of operational efficiencies, the acquisition of
ABI which has a consistent history of positive earnings, and the achievement of
consolidated net income for the fiscal year. In addition to generating a profit
in fiscal year 1996, Astor Holdings II determined it would have been profitable
in 1995 had the reorganization and acquisition of ABI taken place at the
beginning of that year. As a result, Astor Holdings II believes it is more
likely than not that the deferred tax asset will be realized. In fiscal year
1997, Astor Holdings II eliminated the remaining valuation allowance of
$1,585,000 after it was concluded through tax planning strategies that it was
more likely than not Astor Holdings II could utilize the 1991 and prior net
operating losses that had been subject to the valuation allowance.
F-16
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
Total income tax expense for the fiscal year ended March 31, 1997 and 1996
differed from the amounts computed by applying the U.S. federal income tax rate
to income before taxes and extraordinary items as a result of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Income tax expense at the 34% statutory federal income tax
rate.......................................................... $ 2,394,000 $ 694,325
Current and deferred state and local income taxes, net of
federal income tax benefit.................................... (459,196) 1,152,837
Realization of the net operating losses previously subject to
valuation allowance........................................... -- (920,091)
Non-deductibility of goodwill amortization...................... 618,000 315,000
Reduction of valuation allowances............................... (1,585,000) (4,865,981)
Other........................................................... (420,256) 189,744
------------- -------------
Total income tax expense (benefit).............................. $ 547,548 $ (3,434,166)
------------- -------------
------------- -------------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Astor Holdings II, through its acquisition of ABI, has a contributory,
defined-benefit pension plan covering certain employees in the United Kingdom.
Benefits are based on length of service and a negotiated benefit rate. Astor
Holdings II's policy is to fund the plan based upon statutory requirements. Plan
assets are primarily invested in domestic and international stocks and bonds.
Astor Holdings II, through its acquisition of ADCO, has a noncontributory,
defined-benefit pension plan covering union employees at ADCO. Benefits are
based on length of service and a negotiated benefit rate. Astor Holdings II's
policy is to fund the plan based upon statutory requirements. Plan assets are
invested in mutual funds and money market accounts.
F-17
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following tables present the funded status and amounts recognized in the
balance sheet as of March 31:
<TABLE>
<CAPTION>
1997 1996
---------------------------- -------------
PLAN WITH PLAN WITH PLAN WITH
ASSETS IN ACCUMULATED ASSETS IN
EXCESS OF BENEFITS IN EXCESS OF
ACCUMULATED EXCESS OF ACCUMULATED
BENEFITS ASSETS BENEFITS
------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Vested............................................................ $ 12,296,000 $ 577,000 $ 10,541,000
Non-vested........................................................ -- 37,000 --
------------- ------------- -------------
Accumulated benefit obligation...................................... $ 12,296,000 $ 614,000 $ 10,541,000
------------- ------------- -------------
------------- ------------- -------------
Projected benefit obligation........................................ $ 14,123,000 $ 614,000 $ 12,150,000
Plan assets at fair value........................................... 14,498,000 444,000 13,172,000
------------- ------------- -------------
Plan assets in excess of (less than) projected benefit obligation... 375,000 (170,000) 1,022,000
Unrecognized net loss (gain)........................................ 61,000 -- (613,000)
------------- ------------- -------------
Net pension asset (liability)....................................... $ 436,000 $ (170,000) $ 409,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Net pension expense was comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C> <C>
Service cost....................................................................... $ 340,000 $ 209,000
Interest cost on projected benefit obligation...................................... 1,022,000 718,000
Actual return on plan assets....................................................... (604,000) (1,422,000)
------------- -------------
Net amortization and deferral...................................................... (659,000) 606,000
------------- -------------
$ 99,000 $ 111,000
------------- -------------
------------- -------------
</TABLE>
At March 31, 1997, the assumed long-term rate of return on assets and
discount rate used in determining net pension expense was 8% (8.5% for the ADCO
plan) and 7.5%, respectively (9% and 8%, respectively, at March 31, 1996). The
assumed rate of increase in the future compensation level was 5.5 % (6% at March
31, 1996).
Astor Corporation also sponsors defined-contribution plans under Section
401(k) of the Code. These plans cover employees at the U.S. Wax Division.
Employees may elect to contribute up to 15% of their annual compensation to the
plans, subject to limits established by the Code. Astor Holdings II's
contribution to the plans is based on 100% of the first 3% of compensation
contributed by employees. Astor Holdings II also may make discretionary
contributions. For the years ended March 31, 1997 and 1996, Astor Holdings II
contributed approximately $441,000 and $92,000, respectively, in the aggregate
to these plans. There were no contributions to these plans for the year ended
March 31, 1995.
ADCO also sponsors a retirement savings plan which includes a
defined-contribution 401(k) plan and a discretionary profit sharing plan, which
covers substantially all non-union employees. Astor Holdings II's contributions
to the 401(k) plan are based on 1.25% of salary for the first 5% of compensation
contributed by employees. For the period from October 8, 1996 to March 31, 1997,
Astor Holdings II contributed approximately $21,000 to the 401(k) plan. The
profit sharing amount is determined annually by the Board of Directors and was
$134,000 for the period from October 8, 1996 to March 31, 1997.
F-18
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. POSTRETIREMENT MEDICAL BENEFITS
Astor Holdings II provides certain health insurance benefits to eligible and
formerly full-time retired U.S. employees. Participants generally become
eligible for these benefits after achieving certain age and years of service
requirements.
Astor Holdings II will provide 100% of eligible employees' premium coverage
for individuals at the Titusville, PA location, which relates to the ABI
acquisition, retiring between the ages of 62 - 65 under the group health plan,
and will provide premium coverage for eligible retirees greater than age 65 for
coverage supplemental to Medicare.
Effective February 1, 1996, Astor Holdings II ratified a new union contract
in relation to its U.S. wax manufacturing plants which provides for Astor
Holdings II to continue to pay for 80% of eligible individual employee group
health and dental plan coverage for employees who retire between the ages of 62
and 65 with coverage ending upon attainment of age 65. The accumulated
postretirement benefit obligation at the effective date was $538,000 and will be
recognized over 20 years.
Astor Holdings II's current policy is to fund these benefits on a
pay-as-you-go basis.
The amounts recognized in Astor Holdings II's March 31, 1997 and 1996
balance sheets are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees.................................................................. $ 322,908 $ 291,936
Fully eligible active..................................................... 537,741 564,599
Other, not fully eligible................................................. 259,059 247,965
------------ ------------
Total accumulated postretirement benefits obligation........................ 1,119,708 1,104,500
Unrecognized prior service costs............................................ (506,367) (533,500)
------------ ------------
Accrued postretirement benefit obligation................................... $ 613,341 $ 571,000
------------ ------------
------------ ------------
</TABLE>
These obligations are included in other long-term liabilities on Astor
Holdings II's March 31, 1997 and 1996 balance sheets.
Net periodic postretirement benefit costs for the years ended March 31, 1997
and 1996 included the following components:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Service cost--benefits earned during the period............................. $ 14,000 $ 13,000
Interest cost............................................................... 39,955 37,000
Amortization................................................................ 26,887 4,482
------------ ------------
Net periodic postretirement benefit cost.................................... $ 80,842 $ 54,482
------------ ------------
------------ ------------
</TABLE>
For measuring the postretirement benefit obligation, an 8% annual rate of
increase in the net medical claims cost was assumed. The rate was assumed to
decrease gradually to 5% in 2005 and remain at that level thereafter. Increasing
the annual rate of increase in the net medical claims cost by one percentage
point in each year would increase the accumulated postretirement benefit
obligation at March 31, 1997 by 12.4% or $139,000 (12.4% or $137,000 at March
31, 1996) and would increase the service cost and interest cost components of
net periodic postretirement benefit cost at March 31, 1997 by 15.2% or $8,200
(15.2%
F-19
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. POSTRETIREMENT MEDICAL BENEFITS (CONTINUED)
or $7,600 at March 31, 1996) in the aggregate. The discount rate used in
determining the accumulated postretirement benefit obligation was 7% in both
1997 and 1996.
13. COMMITMENTS AND CONTINGENCIES
As is prevalent in the industry, Astor Holdings II has environmental issues
that it is addressing. There are issues related to the remediation of
contaminated soils and ground water at the U.S. wax manufacturing plants. Quaker
State Corporation (QSC) is responsible for the vast majority of the costs
associated with the issues. Astor Holdings II's potential liability is limited
to sharing fifty percent of the first $5,500,000 of non-ground water remediation
with QSC. Astor Holdings II will pay for its share of the above costs by issuing
subordinated 9% notes payable to QSC which will be due in equal quarterly
installments commencing on July 1, 1999 through December 31, 2008. As of March
31, 1997, Astor Holdings II has incurred $251,477 of shared costs and has
provided a note to QSC (Note 7). The future cost to Astor Holdings II for
non-ground water remediation, if any, is not known at this time.
The U.S. Wax Division has environmental issues related to ground
contamination at its Titusville, PA facility. Under the terms of the L1,450,988
of 8% subordinated debt issued to ABI's former shareholders by Astor Holdings,
Astor Holdings is entitled to set-off costs in excess of $350,000 relating to
this site against the principal and interest otherwise payable, so long as Astor
Holdings notifies the noteholders by June 28, 1999 of the existence of a
condition that could give rise to a set-off claim. Astor Holdings II has accrued
in other long-term liabilities the initial $350,000 for which it is responsible.
Astor Holdings II believes it has provided for probable losses with respect to
these issues and does not anticipate a material impact on future operating
results.
The Michigan Department of Natural Resources has identified the property on
which ADCO's plant is located as a site of environmental contamination.
Management has recorded a reserve of approximately $210,000 at March 31, 1997
included in other accrued liabilities, as an estimate of the amount of loss that
is reasonably possible to be incurred for this site. Management does not believe
it is reasonably possible that an adverse outcome on the issue, greater than the
amount recorded, would have a material effect on Astor Holdings II's financial
condition, operations or liquidity. ADCO has notified Nalco Chemical Company
("Nalco"), the previous owner of ADCO, that Nalco may be responsible for
indemnifying ADCO for expenditures made for the above matter. Pursuant to the
terms of an agreement entered into in connection with ADCO's acquisition of Adco
Products, Inc., ADCO is indemnified to a limited extent against certain
environmental liabilities by Nalco. In certain instances, the indemnification is
limited by a $100,000 deductible and a limitation on the amount of
indemnifications ranging from $341,600 to $3.5 million depending upon the type
of claim made, with an aggregate limitation of $3.5 million for all such claims
made.
14. INVESTMENT IN RHEOCHEM TECHNOLOGIES, INC.
Astor Holdings II's investment in Rheochem Technologies, Inc. ("Rheochem")
is a 50% investment in a joint venture, which was obtained through the
acquisition of ABI. Rheochem is a domestic developer and manufacturer of
products such as paraffin lubricants, synthetic stearate and other lubricating
systems which are used in the extrusion of polyvinyl chloride (PVC) products.
Astor Holdings II accounts for its investment using the equity method.
F-20
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INVESTMENT IN RHEOCHEM TECHNOLOGIES, INC. (CONTINUED)
During the years ended March 31, 1997 and 1996, Astor Holdings II had sales
to Rheochem of approximately $6,700,000 and $4,300,000 and at March 31, 1997 and
1996 has a receivable from Rheochem of $474,641 and $566,000, respectively.
Also, Astor Holdings II received a management fee from Rheochem of $1,643,000
and $1,100,000 in the years ended March 31, 1997 and 1996, respectively, which
is netted against selling, general and administrative expenses in the
accompanying consolidated statements of operations.
The differences between the carrying amount of the investment on Astor
Holdings II's books and the amount of Astor Holdings II's share of Rheochem's
underlying equity in net assets of approximately $2,800,000 is being amortized
over 25 years by Astor Holdings II.
The following summarized financial statement information for Rheochem is as
of December 31, 1996:
<TABLE>
<S> <C>
Assets:
Current.............................................................. $5,004,623
Non-current.......................................................... $2,008,693
Liabilities:
Current.............................................................. $4,018,326
Non-current.......................................................... $ 105,000
Net sales.............................................................. $34,273,427
Gross profit........................................................... $6,357,556
Net income............................................................. $ 858,306
</TABLE>
On April 30, 1997, Astor Corporation acquired for $14.1 million the 50%
joint venture interest in Rheochem that was previously held by Rheochem, Inc. To
finance this acquisition, Astor Corporation borrowed $12.5 million under the
Senior Bank Facility and paid $1.6 million from available cash. Rheochem will
operate as a division of Astor Corporation.
15. RELATED PARTIES
As discussed in Note 14, Astor Holdings II transacts business with Rheochem
in which it has a 50% ownership.
Astor Holdings has issued redeemable preferred stock. The series A preferred
stock has a liquidation preference and stated value of $14,250,000 and has a
cumulative 14.5% dividend rate. The holders of the series A preferred stock may
require Astor Holdings to redeem the shares after June 15, 2007 or upon a change
in control. The series B preferred stock has a liquidation preference and stated
value of $8,250,000 and has a cumulative 14.5% dividend rate. The holders of the
series B preferred stock may require Astor Holdings to redeem the shares upon a
change in control. Astor Holdings' source of funds for any redemption or payment
of dividends will likely be distributions received from Astor Corporation.
Astor Holdings II has incurred debt of L3,736,295 ($6,125,656 at March 31,
1997) payable to Astor Holdings in conjunction with the purchase of ABI. The
intercompany debt accrues interest at 8% per annum, which is payable
semi-annually through 2003. The principal balance is due in one installment on
July 5, 2003.
Astor Holdings has entered into a management agreement with a company
related to its principal stockholders. Astor Holdings incurred a management fee
of approximately $430,000 and $320,000 during
F-21
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTIES (CONTINUED)
the years ended March 31, 1997 and 1996, respectively, related to this
agreement. During the years ended March 31, 1997 and 1996, Astor Corporation
advanced approximately $470,000 and $270,000, respectively, to Astor Holdings to
provide funds for the management fee and other expenses. Astor Holdings' sources
of funds to repay these advances will likely be distributions funded by Astor
Corporation.
16. CRUDE OIL SWAP CONTRACTS
In April 1997, Astor Holdings II entered into a series of price swap
contracts to fix the purchase price of crude oil, primarily through March 31,
1998. These contracts cover a notional amount of crude oil equivalent to 718,000
barrels.
17. MAJOR CUSTOMERS
For the year ended March 31, 1995, sales made to one customer represented
approximately 11% of Astor Holdings II's total sales. The related accounts
receivable balance from this customer represented approximately 2% of total
accounts receivable at March 31, 1995. For the years ended March 31, 1997 and
1996, there were no sales to any single customer which exceeded 10% of Astor
Holdings II's total sales.
18. BUSINESS SEGMENT INFORMATION
Astor Holdings II operates primarily in two industries: Specialty Waxes and
Adhesives and Sealants. Operations in Specialty Waxes involve the developing,
producing and marketing of a wide range of specialty waxes used in various
applications such as packaging, tires and rubber, candles, synthetic fireplace
logs and PVC lubricants. Operations in Adhesives and Sealants involve the
developing, producing and marketing of a growing line of adhesives and sealants
including hot-melts, pumpables and extruded tape products. Prior to the
acquisition of ADCO in the year ended March 31, 1997, Astor Holdings II operated
primarily in one industry, Specialty Waxes. Following is a summary of segment
information for the fiscal year ended March 31, 1997:
<TABLE>
<CAPTION>
SPECIALTY ADHESIVES AND
WAXES SEALANTS CORPORATE CONSOLIDATED
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers......... $ 157,430,192 $ 39,569,830 $ -- $ 197,000,022
Intersegment sales...................... -- -- -- --
-------------- ------------- ------------- --------------
Total revenue........................... $ 157,430,192 $ 39,569,830 $ -- $ 197,000,022
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Operating income........................ $ 18,747,094 $ 2,265,804 $ (4,408,981) $ 16,603,917
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Income from Rheochem Technologies,
Inc.................................... $ 651,000
Interest expense........................ (10,213,770)
--------------
Income before taxes and extraordinary
items.................................. $ 7,041,147
--------------
--------------
Identifiable assets..................... $ 101,762,996 $ 52,644,976 $ 67,718,683 $ 222,126,655
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Capital expenditures.................... $ 3,140,023 $ 1,749,208 $ -- $ 4,889,231
Depreciation............................ 3,815,244 1,223,322 -- 5,038,566
Amortization............................ $ 203,000 $ 15,858 $ 2,634,430 $ 2,853,288
</TABLE>
F-22
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. BUSINESS SEGMENT INFORMATION (CONTINUED)
Astor Holdings II operates in two principal geographic areas, the United
States and Europe. Prior to the acquisition of ABI in the fiscal year ended
March 31, 1996, substantially all business was conducted domestically and there
were no foreign operations. The following is a summary of information by area
for the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers......... $ 136,753,887 $ 60,246,135 $ -- $ 197,000,022
Intra-group sales....................... 1,189,000 1,380,818 (2,569,818) --
-------------- ------------- ------------- --------------
Total net sales......................... $ 137,942,887 $ 61,626,953 $ (2,569,818) $ 197,000,022
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Operating income........................ $ 14,501,444 $ 2,102,473 $ -- $ 16,603,917
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Income from Rheochem Technologies,
Inc.................................... $ 651,000
Interest expense........................ (10,213,770)
--------------
Income before taxes and extraordinary
items.................................. $ 7,041,147
--------------
--------------
Identifiable assets..................... $ 158,496,430 $ 63,630,225 $ -- $ 222,126,655
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers......... $ 85,026,313 $ 45,930,628 $ -- $ 130,956,941
Intra-group sales....................... 374,000 705,915 (1,079,915) --
-------------- ------------- ------------- --------------
Total net sales......................... $ 85,400,313 $ 46,636,543 $ (1,079,915) $ 130,956,941
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Operating income........................ $ 5,609,216 $ 2,449,329 $ -- $ 8,058,545
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Income from Rheochem Technologies,
Inc.................................... $ 91,000
Interest expense........................ (5,251,079)
Reorganization items.................... (856,335)
--------------
Income before taxes and extraordinary
items.................................. $ 2,042,131
--------------
--------------
Identifiable assets..................... $ 86,646,993 $ 56,258,558 $ -- $ 142,905,551
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
Operating income represents total net sales less operating expenses,
depreciation and amortization for each industry segment/geographic area.
Identifiable assets are those that are identifiable with operations in each
industry segment/geographic area. General corporate assets consist primarily of
goodwill and deferred financing costs.
Intergeographic sales are recorded at amounts generally above cost and in
accordance with the rules and regulations of the respective governing tax
authorities and are excluded from net sales reported in the accompanying
statements of operations. There are no intersegment sales. U.S. operations'
sales to unaffiliated customers include approximately $13,300,000 and $7,800,000
for the years ended March 31, 1997 and 1996, respectively, for export. There
were no such sales during the year ended March 31, 1995.
F-23
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUMMARY FINANCIAL INFORMATION
The following represents summarized financial information of Astor Holdings
II and its wholly-owned subsidiary Astor Corporation for the years ended March
31, 1997 and 1996:
<TABLE>
<CAPTION>
ASTOR ASTOR
HOLDINGS II CORPORATION ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
March 31, 1997:
Current assets......................... $ 10,031,514 $ 76,252,730 $ (10,031,514) $ 76,252,730
Non-current assets..................... 35,270,816 145,857,843 (35,254,734) 145,873,925
------------- -------------- -------------- --------------
Total assets........................... $ 45,302,330 $ 222,110,573 $ (45,286,248) $ 222,126,655
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Current liabilities.................... $ -- $ 38,678,752 $ -- $ 38,678,752
Non-current liabilities................ 6,403,911 148,177,087 (10,031,514) 144,549,484
Preferred stock of subsidiary.......... -- 1,744,721 (1,744,721) --
Shareholder's equity................... 38,898,419 33,510,013 (33,510,013) 38,898,419
------------- -------------- -------------- --------------
Total liabilities and shareholder's
equity................................ $ 45,302,330 $ 222,110,573 $ (45,286,248) $ 222,126,655
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Sales.................................. $ -- $ 197,000,022 $ -- $ 197,000,022
Gross profit before depreciation and
amortization.......................... -- 46,609,749 -- 46,609,749
Income before extraordinary items...... 6,493,599 6,168,794 (6,168,794) 6,493,599
Net income............................. $ 2,710,766 $ 2,385,961 $ (2,385,961) $ 2,710,766
March 31, 1996:
Current assets......................... $ 9,175,193 $ 47,478,592 $ (9,175,193) $ 47,478,592
Non-current assets..................... 33,059,673 95,406,077 (33,038,791) 95,426,959
------------- -------------- -------------- --------------
Total assets........................... $ 42,234,866 $ 142,884,669 $ (42,213,984) $ 142,905,551
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Current liabilities.................... $ (61,686) $ 27,665,216 $ -- $ 27,603,530
Non-current liabilities................ 5,938,881 82,180,662 (9,175,193) 78,944,350
Preferred stock of subsidiary.......... -- 1,744,721 (1,744,721) --
Shareholder's equity................... 36,357,671 31,294,070 (31,294,070) 36,357,671
------------- -------------- -------------- --------------
Total liabilities and shareholder's
equity................................ $ 42,234,866 $ 142,884,669 $ (42,213,984) $ 142,905,551
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Sales.................................. $ -- $ 130,956,941 $ -- $ 130,956,941
Gross profit before depreciation and
amortization.......................... -- 27,241,975 -- 27,241,975
Income before extraordinary items...... 5,476,297 5,463,753 (5,463,753) 5,476,297
Net income............................. $ 50,409,533 $ 50,396,989 $ (50,396,989) $ 50,409,533
</TABLE>
F-24
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 1997 and 1996, in thousands:
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
QUARTER ENDED: 1996 1996 1996 1997
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 42,160 $ 42,339 $ 56,032 $ 56,469
Gross profit before depreciation and amortization.......... 9,905 10,186 12,668 13,851
Income before extraordinary item........................... 1,414 3,677 291 1,112
Extraordinary item......................................... -- -- (3,783) --
Net income (loss).......................................... 1,414 3,677 (3,492) 1,112
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
QUARTER ENDED: 1995 1995 1995 1996
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 15,921 $ 36,648 $ 37,882 $ 40,506
Gross profit before depreciation and amortization.......... 2,246 7,760 8,003 9,233
Income (loss) before extraordinary item.................... (855) 270 198 5,863
Extraordinary item......................................... 44,933 -- -- --
Net income................................................. 44,078 270 198 5,863
</TABLE>
The significant increase in sales during the quarter ended December 31, 1996
is related to the acquisition of ADCO on October 8, 1996. The significant
increase in sales during the quarter ended September 30, 1995 is related to the
acquisition of ABI on June 28, 1995.
F-25
<PAGE>
ASTOR HOLDINGS II, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ---------------------------- BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCTS DEDUCTIONS PERIOD
- --------------------------------------------------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 726 $ 605 $ 146(1) $ 419(3) $ 1,058
----- ----- ----- ----- -----------
Total.......................................... $ 726 $ 605 $ 146 $ 419 $ 1,058
----- ----- ----- ----- -----------
----- ----- ----- ----- -----------
Year ended March 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 208 $ 245 $ 495(2) $ 222(3) $ 726
----- ----- ----- ----- -----------
Total.......................................... $ 208 $ 245 $ 495 $ 222 $ 726
----- ----- ----- ----- -----------
----- ----- ----- ----- -----------
Year ended March 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ -- $ 208 $ -- $ -- $ 208
----- ----- ----- ----- -----------
Total.......................................... $ -- $ 208 $ -- $ -- $ 208
----- ----- ----- ----- -----------
----- ----- ----- ----- -----------
</TABLE>
- ------------------------
(1) Relates to allowance recorded as part of accounting for the purchase of Adco
Technologies, Inc.
(2) Relates to allowance recorded as part of accounting for the purchase of
Associated British Industries Limited.
(3) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (the "Agreement") is made and
entered into as of June 28 1995, by and between MSC Holdings, Inc.., a
Delaware corporation ("MSC"), Century City 1800 Partners L.P., a Delaware
limited partnership ("CCP"), and UBS Capital Corporation, a New York
corporation ("UBS Capital").
WHEREAS, MSC wishes to assure itself of the services of CCP as a
financial consultant upon the terms and conditions set forth in this
Agreement, and CCP is willing to accept such consultancy;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. SCOPE OF SERVICES. CCP, through its employees, affiliates and
employees of affiliates, shall provide MSC and affiliates of MSC in which MSC
has an ownership interest (collectively, the "MSC Group") with consultation
and advice in such fields as financial services, accounting, general business
management, acquisitions, banking and legal matters (the "Services"). CCP
shall, in its reasonable discretion, determine the amount of time to be
expended by its affiliates and employees in performing such Services. CCP
shall perform its duties hereunder at such times and places as are
reasonable, in the reasonable discretion of CCP, in light of the tasks
involved. CCP shall not be required to comply with any established work
schedule and shall have no regularly scheduled duties assigned to it by MSC.
MSC shall, in soliciting CCP's advice and requesting CCP's performance of its
duties hereunder, give CCP reasonable advance notice of the same in
consideration of CCP's other business obligations.
2. COMPENSATION.
(a) In consideration of the Services to be rendered hereunder, MSC
hereby agrees to pay CCP a base annual management fee (the "Base
Compensation") of $400,000. Payments of the Base Compensation shall be made
in monthly installments payable in advance on the first day of each calendar
month. The first and last payments hereunder shall be appropriately pro
rated for the shorter periods that may be reflected thereby. The Base
Compensation shall be increased on each anniversary of the date of this
Agreement by the percentage increase in the Consumer Price Index as published
by the Bureau of Labor Statistics.
(b) In addition to the fees payable to CCP under Section 2(a)
above, MSC shall (i) pay to CCP a transaction fee for merger and acquisition
services rendered in connection with acquisitions made by any member of the
MSC Group, such fee to equal 1.4% of the aggregate acquisition consideration
(including debt assumed by the purchaser and current assets retained by the
seller); and (ii) reimburse CCP for all of its reasonable out-of-pocket costs
and expenses incurred in connection with the performance of its obligations
under this Agreement.
(c) Notwithstanding the foregoing provisions of this Section 2, MSC
shall not make payment of any compensation payable to CCP pursuant to
Section 2(a) or (b) or to UBS Capital pursuant to Section 2(d) at any time that
such payment would be
Management Services Agreement
-----------------------------
1
<PAGE>
prohibited by the terms of that certain Facility Agreement, dated June 16,
1995, between ABI Acquisition 2 PLC and MSC Holdings, Inc. as initial
borrowers, the companies named therein as initial guarantors, Union Bank of
Switzerland as arranger, Union Bank of Switzerland as facility agent, Union
Bank of Switzerland as security trustee and certain others, as the same may
be amended, revised or restated from time to time. Nothing in this Section
2(c), shall prohibit the payment of compensation payable to CCP or UBS
Capital at any time following the expiration or termination of a payment
blockage pursuant to the preceding sentence, nor prohibit or limit the
accrual of compensation payable to CCP pursuant to Section 2(a) or (b) or to
UBS Capital pursuant to Section 2(d) at any time during which a payment
blockage pursuant to the preceding sentence remains in effect.
(d) UBS Capital will provide such merger and acquisition services
as may be reasonably requested from time to time by MSC in connection with
acquisitions made by any member of the MSC Group. Such acquisition services
shall consist of consultation and advice in such fields as financial
services, accounting, general business management, acquisitions, banking and
legal matters. In consideration of such services, MSC shall (i) pay to UBS
Capital a transaction fee equal to 0.6% of the aggregate acquisition
consideration (including debt assumed by the purchaser and current assets
retained by the seller); and (ii) reimburse UBS Capital for all of its
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of such merger and acquisition services. Nothing in this Section
2(d) shall entitle UBS Capital to the payment of any amounts with respect to
the transactions and payments described in Section 2(e).
(e) The parties hereto acknowledge that substantially concurrently
with the execution of this Agreement, Petrowax PA Inc. will pay CCP a fee of
$500,000 in connection with certain equity and debt financing being provided
to MSC, and an affiliate of CCP, Aurora Capital Partners L.P., will be paid a
transaction fee of $1,350,000 by ABI Acquisition 2 PLC in connection with the
acquisition of Associated British Industries PLC. The parties agree that
none of the foregoing amounts are being paid pursuant to this Agreement or
will constitute compensation payable or paid to CCP pursuant to this Section
2.
3. TERM. Unless earlier terminated as provided in Section 4
below, the term of this Agreement shall commence on the date hereof and shall
terminate automatically upon the earliest of (i) the occurrence of any Change
of Control of MSC, (ii) the date one year after the consummation of a
Qualified IPO and (iii) the seventh anniversary of the date of this Agreement.
For purposes hereof, the following terms shall have the following
meanings:
"BENEFICIAL OWNER" has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934 (the "Exchange
Act") (as in effect on the date first set forth above), whether or
not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time.
"CAPITAL STOCK" means, any and all shares, interests, rights to
purchase (other than convertible or exchangeable indebtedness),
warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by MSC.
Management Services Agreement
-----------------------------
2
<PAGE>
"CHANGE OF CONTROL" means with respect to MSC (i) any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of MSC, on a consolidated basis, in
one transaction or a series of related transactions, (ii) any
transaction as a result of which any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) (other than any Excluded
Person) is or becomes the Beneficial Owner, directly or indirectly,
of 50% or more of the total voting power in the aggregate of all
classes of Capital Stock of MSC then outstanding normally entitled
to vote in elections of directors, (iii) during any period of 12
consecutive months after the date first set forth above,
individuals who at the beginning of any such 12-month period
constituted the Board of Directors of MSC (together with any new
directors whose election by such Board or whose nomination for
election by the shareholders of MSC was approved by a vote of a
majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of MSC
then in office or (iv) if at any time prior to the consummation of
a Qualified IPO, the Originating Partnerships fail to have the
ability to elect not less than a majority of the members of the
Board of Directors of MSC (with each UBS nominee elected pursuant
to Section 11.2 of the Stockholders Agreement being deemed to have
been elected by the Originating Partnerships).
"EXCLUDED PERSON" means (i) MSC, (ii) any employee benefit plan of
MSC or any trustee or similar fiduciary holding Capital Stock of
MSC for or pursuant to the terms of any such plan, (iii) the
holders of any Capital Stock of MSC on the date first set forth
above and, as to any partnership which is a holder of the Capital
Stock of MSC on the date first set forth above, any Person who
holds, directly or indirectly, any beneficial interest in any such
partnership on such date, and (iv) all Related Persons of any
Person described in the foregoing clause (iii) of this Paragraph.
"ORIGINATING PARTNERSHIPS" means Petrowax Equity Partners I L.P., a
Delaware limited partnership, and Petrowax Equity Partners II L.P.,
a Delaware limited partnership.
"PERSON" or "PERSON" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity,
country, state or political subdivision thereof, trust,
municipality or other entity.
"QUALIFIED IPO" means an underwritten public offering of common
stock of MSC pursuant to a registration statement filed with the
Securities and Exchange Commission; provided that either (i) there
are sales pursuant to such registration statement of shares of
common stock for an aggregate offering price of not less than
$15,000,000 or (ii) upon consummation of such underwritten public
offering at least
Management Services Agreement
-----------------------------
3
<PAGE>
fifteen percent (15%) of the issued and outstanding shares of
common stock of MSC shall have been issued pursuant to one or more
registration statements filed with the Securities and Exchange
Commission.
"RELATED PERSON" means, with respect to any Excluded Person, (i)
any Person who, directly or indirectly, controls, is controlled by
or under common control with such Excluded Person; PROVIDED,
HOWEVER, that for purposes of this definition "control" means the
possession, direct or indirect, 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 shall be deemed to include the beneficial ownership
of more than 10% of the total voting power of a Person normally
entitled to vote in the election of directors, managers or
trustees, as applicable, of a Person and (ii) as to any natural
person, (A) such person's spouse, parents and descendants (whether
by blood or adoption, and including stepchildren) and the spouses
of any of such natural persons and (B) any corporation,
partnership, trust or other Person in which no one has any interest
(directly or indirectly) except for any of such natural person,
such spouse, parents and descendants (whether by blood or adoption,
and including stepchildren) and the spouses of any of such natural
persons.
"STOCKHOLDERS AGREEMENT" means that certain Stockholders Agreement,
of even date herewith, among MSC and certain of its stockholders,
optionholders and warrantholders, as the same may be supplemented,
amended or otherwise modified from time to time.
4. TERMINATION FOR CAUSE. MSC, by written notice to CCP
authorized by a majority of the disinterested members of the Board of
Directors of MSC, may terminate this Agreement for justifiable cause, which
shall mean any of the following events: (a) misappropriation by CCP of funds
or property of MSC; (b) gross neglect by CCP in the fulfillment of its
obligations hereunder; or (c) the conviction of CCP or any person who is then
a principal of CCP of a felony involving moral turpitude that has become
final and not subject to further appeal.
5. CONFIDENTIAL INFORMATION. During the term of this Agreement,
CCP and UBS Capital will have access to and become acquainted with
confidential information of MSC, including among other things customer
relationships, processes, and compilations of information, records and
specifications, which are owned by MSC. Neither CCP nor UBS Capital shall
use any of MSC's confidential information in any way that is detrimental to
the interests of MSC, directly or indirectly, either during or within three
(3) years after the term of this Agreement, except as required in the course
of this Agreement.
6. NOTICES. All notices, demands and requests required under
this Agreement shall be in writing and shall be deemed to have been given if
served personally or sent by registered or certified mail, postage prepaid,
or by telegraph or telex addressed to the addressee set forth or such other
addresses as either party may designate by notice to the other:
Management Services Agreement
-----------------------------
4
<PAGE>
If to MSC: MSC Holdings, Inc.
1800 Century Park East
Suite 1000
Los Angeles, CA 90067
Telecopier No.: (310) 227-5591
Attn: Monty Yort
If to CCP: Century City 1800 Partners L.P.
1800 Century Park East
Suite 1000
Los Angeles, CA 90067
Telecopier No.: (310) 227-5591
Attn: Richard K. Roeder
If to UBS Capital: UBS Capital Corporation
229 Park Avenue
New York, New York
Telecopier No.: (212) 821-3285
Attn: Jeffrey J. Keenan
Notices delivered in person shall be effective when so delivered. Notices
delivered by courier shall be effective three (3) business days after
delivery by the sender to an air courier of national reputation who
guarantees delivery within such three (3) business day period. Telecopied
notices shall be effective when receipt is acknowledged telephonically by the
addressee or its agent or employee. Notices sent by mail shall be effective
five (5) business days after the sender's deposit of such notice in the
United States mails, first class postage prepaid.
7. ASSIGNS AND SUCCESSORS. The rights and obligations of MSC
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of MSC.
8. ATTORNEYS' FEES. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach thereof, the prevailing party shall be entitled to reasonable
attorneys' fees, as well as costs and disbursements, in addition to any other
relief to which he or she is entitled.
9. INDEMNITY. MSC shall indemnify and hold CCP and UBS Capital
and each of their respective partners, directors, officers, employees and the
stockholders, affiliates, directors, officers and employees of its partners
(and representatives and agents of any of the foregoing designated by CCP or
UBS Capital from time to time whether before or after the occurrence of the
event giving rise to the claim for indemnity) (each such person entitled to
indemnity hereunder being referred to as an "Indemnitee") harmless from any
and all losses, costs, liabilities and damages (including reasonable
attorneys' fees) arising out of or connected with, or claimed to arise out of
or to be connected with, any act performed or omitted to be performed under
this Agreement, provided such act or omission was taken in good faith by such
Indemnitee and did not constitute gross negligence or willful misconduct on
the part of the relevant Indemnitee, and provided further only in the event
of criminal proceedings, that the Indemnitee had no reasonable cause to
believe the conduct of the Indemnitee was unlawful. An adverse judgment or
plea of NOLO CONTENDERE shall not, of itself, create a presumption that the
Indemnitee did not act
Management Services Agreement
-----------------------------
5
<PAGE>
in good faith or that the Indemnitee had reasonable cause to believe the
conduct of the Indemnitee was unlawful. Expenses incurred in defending any
civil or criminal action arising out of or relating to any event or
circumstance to which this indemnity shall apply shall be paid by MSC upon
receipt of an undertaking by or on behalf of the Indemnitee to repay such
amount if it be later shown that such Indemnitee was not entitled to
indemnification. No Indemnitee shall be liable to MSC or any of its
affiliates, stockholders, directors, officers or employees or any affiliates,
stockholders, partners, directors, officers, employees, representatives or
agents of any of the foregoing or any other person claiming through any of
the foregoing for any act or omission by CCP or UBS Capital in the
performance of its duties hereunder or otherwise in relation hereto which was
taken or omitted to be taken in good faith by such Indemnitee and which did
not constitute gross negligence or willful misconduct on the part of such
Indemnitee.
10. OUTSIDE ACTIVITIES OF CCP. CCP shall be entitled to and may
have business interests and engage in business activities in addition to the
activities contemplated by this Agreement. Neither CCP nor any partner,
director, officer, or employee of CCP nor any stockholder, director, officer
or employee of any partner of CCP shall have any obligation or duty to offer
any investment or business opportunity (other than an opportunity directly
involving the petroleum wax industry) of any kind to MSC or any of their
respective stockholders, directors, officers or employees (under any doctrine
of "corporate opportunity" or otherwise), it being expressly understood that
CCP and its partners, directors, officers and employees and the stockholders,
directors, officers and employees of CCP's partners may make investments in,
acquire, or provide management, advisory or consulting services to, entities
engaged in businesses similar to the business of MSC without any duty,
obligation or liability to MSC or their respective stockholders, directors,
officers or employees.
11. AMENDMENT; WAIVER. This Agreement may be amended, and any
right or claim hereunder waived, only by a written instrument signed by CCP,
UBS Capital and MSC. Except as provided in Section 9 hereof, nothing in this
Agreement, express or implied, is intended to confer upon any third person
any rights or remedies under or by reason of this Agreement. No amendment or
waiver of this Agreement requires the consent of any individual, partnership,
corporation or other entity not a party to this Agreement, except that any
amendment of Section 9 shall only operate prospectively as to any Indemnitee
provided therein unless such Indemnitee shall have agreed in writing to such
amendment.
12. CONSTRUCTION, ETC. This Agreement shall be construed under
and governed by the internal laws of the State of California. Section
headings are for convenience only and shall not be considered a part of the
terms and provisions of this Agreement. This Agreement may be executed in
any number of counterparts, each of which when executed and delivered shall
be deemed an original and all of which when taken together shall constitute
one and the same instrument.
Management Services Agreement
-----------------------------
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
MSC HOLDINGS, INC.
By: /s/ Frederick J. Elsea
------------------------------------
Name: Frederick J. Elsea, III
----------------------------------
Title: Vice President
----------------------------------
CENTURY CITY 1800 PARTNERS L.P.
By: CENTURY CITY 1800 MANAGEMENT
PARTNERS, L.P., as General Partner
By: GELPAR, INC., as General Partner
By: /s/ Frederick J. Elsea
------------------------------------
Name: Frederick J. Elsea, III
----------------------------------
Title: Chief Financial Officer
----------------------------------
UBS CAPITAL CORPORATION
By: /s/ Jeffrey J. Keenan
------------------------------------
Name: Jeffrey J. Keenan
----------------------------------
Title: Managing Director
----------------------------------
By: /s/ Justin Maccarone
------------------------------------
Name: Justin Maccarone
----------------------------------
Title: Managing Director
----------------------------------
Management Services Agreement
-----------------------------
7
<PAGE>
STOCKHOLDERS AGREEMENT
AMONG
MSC HOLDINGS, INC.
AND
CERTAIN OF ITS STOCKHOLDERS,
OPTIONHOLDERS
AND
WARRANTHOLDERS
JUNE 27, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions ................................................... 1
2. Restrictions on Transfer ...................................... 13
2.1 Shares Laws Restrictions on Transfer ..................... 13
2.2 Cooperation of Company ................................... 14
2.3 Rule 144 Acknowledgment .................................. 14
2.4 Transfer Restrictions for NOL Preservation ............... 15
2.5 Restrictions on Transfer for Benefit of Stockholders ..... 17
3. First Refusal Rights .......................................... 17
3.1 Restrictions Cumulative .................................. 17
3.2 Bona Fide Offers ......................................... 17
3.3 Involuntary Transfers .................................... 21
iii
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
3.4 Application of First Refusal Rights ...................... 22
3.5 Termination of First Refusal Rights ...................... 23
4. Third Party Offer for All Outstanding Shares .................. 23
4.1 Drag-Along Obligations ................................... 23
4.2 Termination of Drag-Along Obligations .................... 24
4.3 Restrictions Cumulative .................................. 24
4.4 Limitations on Drag-Along ................................ 24
5. Tag-Along Rights for Sales by Partnership Stockholders ........ 26
5.1 Tag-Along Sales by Partnership Stockholders .............. 26
5.2 Notice of Tag-Along Opportunity .......................... 27
5.3 Notice and Terms of Acceptance of Tag-Along Opportunity .. 28
5.4 Application of Tag-Along Provisions ...................... 29
5.5 Termination of Tag-Along Rights .......................... 30
5.6 Restrictions Cumulative .................................. 30
6. Tag-Along Rights for Sales by UBS Group ....................... 30
6.1 Tag-Along Sales by Originating Partnership Group ......... 30
6.2 Notice of Tag-Along Opportunity .......................... 32
6.3 Notice and Terms of Acceptance of Tag-Along Opportunity .. 32
6.4 Application of Tag-Along Provisions ...................... 33
6.6 Restrictions Cumulative .................................. 34
7. Preemptive Rights of UBS Capital .............................. 34
7.1 Grant of Right ........................................... 34
7.2 Exercise of Right ........................................ 35
7.3 Sale upon Waiver ......................................... 35
iv
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
7.4 Termination of Preemptive Rights ......................... 35
8. Affiliate Transactions ........................................ 35
9. Sale of Business .............................................. 36
9.1 Cooperation with UBS Capital ............................. 36
9.2 Receipt of Offer to Purchase ............................. 37
9.3 Evaluation of Alternative Offer .......................... 37
9.4 Confidentiality Agreement ................................ 38
9.5 No Right to Represent or Commit the Company .............. 38
9.6 Termination of Right to Deliver Alternative Offer ........ 38
9.7 Application to Drag-Along Sale ........................... 38
10. Restrictions on Amendment of Governing Documents .............. 39
11. Corporate Governance .......................................... 39
11.1 Observer Status .......................................... 39
11.2 Right of UBS Capital to Nominate Directors ............... 40
11.3 Vacancies ................................................ 40
11.4 Rights not Assignable without Consent .................... 41
11.5 Termination of Governance Rights ......................... 41
12. Termination ................................................... 41
13. Registration Rights ........................................... 41
14. Miscellaneous ................................................. 41
14.1 Governing Law ............................................ 41
14.2 Entire Agreement; Amendments ............................. 41
14.3 Legend on Stock Certificates ............................. 42
14.4 Specific Performance ..................................... 43
14.5 Waiver ................................................... 43
14.6 Successors and Assigns ................................... 43
v
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
14.7 Severability ............................................ 43
14.8 Headings ................................................ 44
14.9 Further Assurances ...................................... 44
14.10 Gender .................................................. 44
14.11 Notices ................................................. 44
14.12 Counterparts ............................................ 44
14.13 Dispute Resolution ...................................... 44
14.14 Authority of UBS Capital ................................ 46
14.15 Effective Date .......................................... 46
EXHIBIT A List of Stockholders
EXHIBIT B Registration Rights
EXHIBIT C Form of Agreement of Beneficial Owner
SCHEDULE 2.4 Beneficial Owners
vi
<PAGE>
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made and entered into as
of July ____, 1995 by and among AVIC GROUP INTERNATIONAL, INC., a Colorado
corporation (the "Company"), and each of the stockholders and warrantholders
of the Company whose names and addresses are listed on Exhibit A hereto, as
the same may be supplemented or amended from time to time (collectively, the
"Stockholders," which term shall include any Permitted Transferees thereof).
RECITALS
WHEREAS, the Company is authorized to issue an aggregate of 50,000,000
shares of common stock, par value $.01 per share; and
WHEREAS, the Stockholders desire to enter into an agreement with each
other and the Company concerning, INTER ALIA, the transfer or other
disposition of securities of the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS.
"ACT" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
"AFFILIATE," when used with reference to any Person, means any other
Person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with such first Person
and, when used with reference to any natural person, shall also include such
person's spouse, parents and descendants (whether by blood or adoption, and
including stepchildren) and the spouses of such persons. "Control" means the
possession, direct or indirect, 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. "Affiliated with" shall have a
correlative meaning to the term "Affiliate."
Holdings Stockholders Agreement
-------------------------------
1
<PAGE>
"ASSOCIATE" means, when used to indicate a relationship with any
Person, (a) any other Person of which such Person is an officer, director or
partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities issued by such other Person,
(b) any trust or estate in which such Person has a substantial beneficial
interest or as to which such Person serves as a Trustee or in a similar
fiduciary capacity, and (c) any spouse of such Person, or any relative who
has the same home as such Person.
"BENEFICIAL OWNER" has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Initial Date), whether
or not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" shall mean any day on which banking institutions in
New York, New York are not authorized or obligated by law to close.
"CAPITAL STOCK" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"CHANGE OF CONTROL" means with respect to the Company (i) any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of the Company, on a consolidated basis, in
one transaction or a series of related transactions, (ii) any transaction as
a result of which any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) (other than an Excluded Person) is or becomes the beneficial
owner, directly or indirectly, of 50% or more of the total voting power in
the aggregate of all classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, (iii) during any period
of twelve consecutive months after the Initial Date individuals who at the
beginning of any such twelve-month period constituted the Board of Directors
of the Company (together with any new directors whose election by such Board
or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in
Holdings Stockholders Agreement
-------------------------------
2
<PAGE>
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office or (iv) if at any time prior to the consummation of a Qualified
IPO, the Originating Stockholders fail to have the ability to elect not less
than a majority of the members of the Board of Directors of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock, and all other stock of any
class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, either to all or to a share
of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time, and any successor statute thereto, in each such
case as supplemented or interpreted by all relevant Treasury Regulations,
interpretive opinions of the Internal Revenue Service and judicial
interpretations.
"ELIGIBLE HOLDERS" means all Stockholders.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"EXCLUDED PERSON" means (i) the Company, (ii) any employee benefit
plan of the Company or any trustee or similar fiduciary holding Capital Stock
of the Company for or pursuant to the terms of any such plan, (iii) the
holders of any Capital Stock of the Company on the Initial Date and, as to
any partnership which is a holder of the Capital Stock of the Company on the
Initial Date, any Person who holds, directly or indirectly, any beneficial
interest in any such partnership on the Initial Date, and (iv) all Related
Persons of any Person described in the foregoing clause (iii) of this
paragraph.
"FAIR MARKET VALUE" of Shares as of a particular date means:
(a) if such class of Shares is listed or admitted to trading on any
exchange or quoted through NASDAQ or any similar organization, the average of
the daily closing
Holdings Stockholders Agreement
-------------------------------
3
<PAGE>
prices per share of such class of Shares for the 20 consecutive trading days
immediately preceding the date of public announcement of the event giving
rise to the determination of Fair Market Value or, if no such public
announcement is made with respect to such event, the average of the daily
closing prices per share of such class of Shares for the 20 consecutive
trading days immediately preceding the day as of which "Fair Market Value" is
being determined. The closing price for each day shall be the last sale
price regular way or, in case no such sale takes place on such day, the
average of the closing bid and asked prices regular way, in either case on
the New York Stock Exchange, or, if such class of Shares is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the class of Shares is listed or admitted to
trading, or if the class of Shares is not so listed or admitted to trading,
the average of the highest reported bid and lowest reported asked prices as
furnished by the National Association of Securities Dealers, Inc. through
NASDAQ or through a similar organization if NASDAQ is no longer reporting
such information.
(b) if such class of Shares is not listed or admitted to trading on
any exchange or quoted through NASDAQ or any similar organization, such value
as shall be determined by the Board of Directors of the Company, in good
faith and in the exercise of reasonable business judgment, which
determination shall be conclusive; provided, however, that if the Fair Market
Value of the Shares the value of which is being determined exceeds
$1,000,000, the Board of Directors of the Company shall provide written
notice of its determination of Fair Market Value to the party hereto seeking
to transfer such Shares, and in the event that such party disagrees with such
valuation, such party may provide written notice of such disagreement (which
notice shall include such party's valuation and the basis therefor) to the
Company within 15 days following such notice from the Board of Directors.
For a period of 15 days following delivery of a notice of disagreement from
the party seeking to transfer such Shares, the Company and such party shall
in good faith seek to mutually agree to a valuation. If at the end of such
15 day period the Company and such party have not mutually agreed to a
valuation, the value of the Shares shall be determined by arbitration in
accordance with the provisions of Section 13.13.
"INITIAL DATE" means June 28, 1995.
Holdings Stockholders Agreement
-------------------------------
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<PAGE>
"INVOLUNTARY TRANSFER" means any transfer, proceeding or action
(other than to a Permitted Transferee) by or in which a Stockholder shall be
deprived or divested of any right, title or interest in or to any Shares,
including, without limitation, (i) any seizure under levy of attachment or
execution, (ii) any foreclosure upon a pledge of such Shares, (iii) any
transfer in connection with a bankruptcy (whether pursuant to the filing of a
voluntary or an involuntary petition under the Federal Bankruptcy Code of
1978, or any modifications or revisions thereto or any similar state law) or
other court proceeding to a debtor in possession, trustee in bankruptcy or
receiver or other officer or agency, (iv) any transfer to a state or to a
public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, or (v) any transfer to a Stockholder's spouse as a result
of the termination of the marital relationship of the Stockholder and the
Stockholder's spouse.
"LIENS" means any and all liens, claims, options, charges,
encumbrances, voting trusts, irrevocable proxies or other rights of any kind
or nature.
"LOAN PERIOD" means the period from the date of this Agreement until
such time as none of UBS Capital, Union Bank of Switzerland or any of their
respective Affiliates is a creditor of the Company or any Subsidiary of the
Company in respect of any commercial loan or revolving credit facility.
"MANAGEMENT SERVICES AGREEMENT" means the Management Services
Agreement of even date herewith between the Company and Aurora Capital
Partners L.P.
"NET OPERATING LOSS CARRYOVER" means the net operating loss, capital
loss, net unrealized built-in loss, general business credit, alternative
minimum tax credit, and any other carryovers or losses as determined for
United States federal income tax purposes existing as of the date of this
Agreement and that are or could become subject to limitation under Section
382 of the Code, and to which the Company is entitled under the Code.
"OPTION" means any options now or hereafter issued by the Company to
purchase Class D Common Stock.
"ORIGINATING PARTNERSHIP GROUP" means the Originating Partnerships
and each Permitted Transferee of the Originating Partnerships then holding
any Shares.
"ORIGINATING PARTNERSHIPS" means P-1 Limited Partnership and P-2
Limited Partnership.
Holdings Stockholders Agreement
-------------------------------
5
<PAGE>
"P-1 LIMITED PARTNERSHIP" means Petrowax Equity Partners I L.P., a
Delaware limited partnership.
"P-2 LIMITED PARTNERSHIP" means Petrowax Equity Partners II L.P., a
Delaware limited partnership.
"P-3 LIMITED PARTNERSHIP" means Petrowax Equity Partners III L.P., a
Delaware limited partnership.
"P-4 LIMITED PARTNERSHIP" means Petrowax Equity Partners IV L.P., a
Delaware limited partnership.
"PERMITTED TRANSFEREE" means:
(a) as to any Stockholder who is a natural person, (i) the
successors in interest to such Stockholder, in the case of a Transfer upon
the death of such Stockholder, (ii) such Stockholder's spouse, parents and
descendants (whether by blood or adoption, and including stepchildren) and
the spouses of such persons, (iii) such Stockholder, with respect to the
disposition of the community property interest of such Stockholder's spouse
in all or any part of the Shares upon the death of such spouse, and any
transferee occasioned by the incompetence of such Stockholder and (iv) in the
case of a Transfer during such Stockholder's lifetime, any Person in which no
Person has any interest (directly or indirectly) except for any of such
Stockholder, such Stockholder's spouse, parents and descendants (whether by
blood or adoption, and including stepchildren) and the spouses of such
persons; PROVIDED that in respect of any Transfer by any Stockholder during
such Stockholder's lifetime pursuant to clause (ii) or (iv), such Stockholder
shall retain voting power over all of the outstanding Shares being
Transferred; and PROVIDED FURTHER, that, in the case of a Transfer to a
Person (such as a partnership or a trust) as to which a governing instrument
exists, (x) such Stockholder shall furnish a copy of such governing
instrument to the Company in advance, (y) the Company shall be reasonably
satisfied that the terms of such governing instrument shall not be
inconsistent with the terms of this Agreement and (z) during the period that
such Shares are held by such Person, the relevant Stockholder shall ensure
that the terms of such governing instrument shall not be amended in any
manner that results in such governing instrument being inconsistent with the
terms of this Agreement;
(b) as to any Stockholder which is a trust, all the beneficiaries
of which are natural persons, such beneficiaries or the grantor of the trust;
Holdings Stockholders Agreement
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<PAGE>
(c) as to any Stockholder which is a limited partnership, (i) any
limited or general partner, officer, employee or Affiliate of such
Stockholder or (ii) any Affiliate of any limited or general partner of such
Stockholder;
(d) as to any Stockholder, a bank or other financial institution to
whom Shares are Transferred by way of pledge or to whom Shares are
Transferred upon the foreclosure thereof; PROVIDED, HOWEVER, that as to any
Stockholder, any such pledge must be approved in advance by a majority of the
disinterested directors of the Board;
(e) as to any Stockholder which is a corporation, all Affiliates of
such Stockholder; and
(f) as to UBS Capital, all UBS Permitted Transferees;
PROVIDED, in each such case, that prior written notice of any such Transfer
is given to the Company by such Stockholder and that the Permitted Transferee
shall agree in advance of such Transfer to be designated as a Stockholder and
to be bound by the terms of this Agreement pursuant to a written agreement
reasonably satisfactory to the Company and the Originating Partnerships.
"PERSON" means a company, a corporation, an association, a
partnership, a limited liability company, an organization, a joint venture, a
trust or other legal entity, an individual, a government or political
subdivision thereof or a governmental agency.
"PREFERRED STOCK" means the Series A Preferred Stock, the Series B
Preferred Stock and any other preferred stock of the Company issued after the
date hereof.
"PRIME RATE" means, as of any date, the per annum rate of interest
most recently publicly announced by Chemical Bank as its "base rate" for
domestic commercial loans.
"PRO RATA" means, with respect to any Stockholder in reference to any
class or group of Stockholders, the ratio of the number of shares of Common
Stock held by or issuable to such Stockholder to the aggregate number of
shares of Common Stock at the time outstanding held by or issuable to all
Stockholders of such class or group, in each case calculated on a fully
diluted basis.
"QUALIFIED IPO" means an underwritten public offering of Common Stock
pursuant to a registration
Holdings Stockholders Agreement
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<PAGE>
statement filed with the Commission; provided that either (i) there are sales
pursuant to such registration statement of shares of Common Stock for an
aggregate offering price of not less than $15,000,000 or (ii) upon
consummation of such underwritten public offering at least fifteen percent
(15%) of the issued and outstanding shares of Common Stock shall have been
issued pursuant to one or more registration statements filed with the
Commission.
"QUALIFIED IPO DATE" means the effective date of the registration
statement for the Qualified IPO.
"REGISTRABLE SECURITIES" means:
(a) any shares of Common Stock issued and outstanding on the date
hereof or issuable upon exercise of options or warrants issued and
outstanding on the date hereof sold to the Stockholders;
(b) any shares of Common Stock issued after the date hereof or issuable
upon exercise of options or warrants issued after the date hereof that, in
any such case, are designated by the Company as Registrable Securities for
purposes of this Agreement to Persons who are or become Stockholders;
(c) any shares of Common Stock purchased pursuant to this Agreement; and
(d) any securities issued or issuable with respect to any Common Stock
referred to in subdivision (a), (b) or (c) of this definition by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when:
(x) a registration statement with respect to the sale of such
securities shall have become effective under the Act and such securities
shall have been disposed of in accordance with such registration statement;
(y) such securities shall have been distributed to the public pursuant
to Rule 144 (or any successor provision) under the Act; or
(z) such securities shall have ceased to be outstanding.
Holdings Stockholders Agreement
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<PAGE>
Except as set forth in the preceding sentence, no Transfer of Registrable
Securities shall cause such Registrable Securities to lose such status.
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with Section 6 and Exhibit B hereto, including,
without limitation, all registration, filing and NASD fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees
and expenses of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, the
reasonable fees and expenses of a single counsel retained by the holders of a
majority of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any.
"RELATED PERSON" means, with respect to any Excluded Person (i) any
Person who, directly or indirectly, controls, is controlled by or under
common control with such Excluded Person; PROVIDED, HOWEVER, that for
purposes of this definition "control" means the possession, direct or
indirect, 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 shall be deemed to include the beneficial
ownership of more than 10% of the total voting power of a Person normally
entitled to vote in the election of directors, managers or trustees, as
applicable, of a Person and (ii) as to any natural person, (A) such person's
spouse, parents and descendants (whether by blood or adoption and including
stepchildren) and the spouses of any of such natural persons and (B) any
corporation, partnership, trust or other Person in which no one has any
interest (directly or indirectly) except for any of such natural person, such
spouse, parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of any of such natural persons.
"RESTRICTION TERMINATION DATE" means the first day of the first
taxable year following the taxable year (or years) in which Net Operating
Loss Carryovers have been reduced to zero.
"SECTION 382 STOCK" means any stock or other interests that are
treated as stock for purposes of Section 382 of the Code, and shall include
in any event the
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Common Stock and Warrants and exclude the Series A Preferred
Stock and the Series B Preferred Stock.
"SERIES A CERTIFICATE OF DESIGNATIONS" means the Certificate of
Designations, Preferences, and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof for the Company's Series A Redeemable Cumulative
Preferred Stock, as in effect on the date hereof or as amended from time to
time after the date hereof in accordance with its terms.
"SERIES A PREFERRED STOCK" means the Company's Series A Redeemable
Cumulative Preferred Stock, par value $.01 per share.
"SERIES B CERTIFICATE OF DESIGNATIONS" means the Certificate of
Designations, Preferences, and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof for the Company's Series B Redeemable Cumulative
Preferred Stock, as in effect on the date hereof or as amended from time to
time after the date hereof in accordance with its terms.
"SERIES B PREFERRED STOCK" means the Company's Series B Redeemable
Cumulative Preferred Stock, par value $.01 per share.
"SHARES" means the shares of Common Stock and Preferred Stock, the
Options and the Warrants now or hereafter issued to or otherwise acquired by
the Stockholders (including acquisitions of such securities concurrently with
the execution of this Agreement and acquisitions of any such securities after
the date hereof whether or not pursuant to the terms hereof and including
issuances of any such securities pursuant to any Option or Warrant existing
on the date hereof or issued subsequent to the date hereof) and all shares of
Capital Stock or other securities (including convertible securities and the
securities into which such convertible securities convert) of the Company or
any successor of the Company issued or issuable in respect thereof as a
result of any stock dividend on, or stock split or reclassification or
conversion of, or in exchange for, any such Common Stock and Preferred Stock
or issued or issuable with respect to such Common Stock, Preferred Stock,
Options or Warrants in connection with any merger or reorganization or
similar transaction involving the Company.
"SHELF REGISTRATION" means a "shelf" registration statement on an
appropriate form pursuant to Rule 415 under
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the Act and/or any similar rule that may be adopted by the Commission.
"SIGNIFICANT STOCKHOLDER" means any Person who owns either (i) on a
fully diluted basis, 5% or more of the then outstanding shares of Common
Stock (treating any owner of securities exercisable for or convertible into
shares of Common Stock as the owner of such underlying shares of Common
Stock) or (ii) Preferred Stock with an aggregate stated value of not less
than $3,500,000.
"SUBSIDIARY" with respect to any Person means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by such Person and one or more Subsidiaries of such
Person or by one or more Subsidiaries of such Person, or (ii) any other
Person (other than a corporation) in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof has
at least majority ownership interest.
"THREE-YEAR DATE" means the earlier of (i) the day after the
expiration of three full years from the date the Stockholder first acquires
shares of Common Stock and (ii) the Restriction Termination Date.
"TRANSFER" shall mean any direct or indirect disposition of an
interest whether by sale, exchange, merger, consolidation, transfer,
assignment, conveyance, distribution, pledge, inheritance, gift, mortgage,
the creation of any security interest in, or lien or encumbrance upon, any
other disposition of any kind and in any manner, by operation of law or
otherwise, or any other transfer or agreement which would result in a change
in the percentage of the Company's Capital Stock owned or considered owned by
a Stockholder or a Beneficial Owner (as defined in Section 2.4(c)) as
determined for purposes of Section 382 of the Code.
"TRANSFER ALLOTMENT" means, (i) with respect to P-1 Limited
Partnership, P-2 Limited Partnership, P-3 Limited Partnership, and P-4
Limited Partnership, the portion of a Beneficial Owner's Beneficial Interest
that may be Transferred after the Three-Year Date and prior to the
Restriction Termination Date such that after taking into account such
Transfer and all prior Transfers of Beneficial Interests and all Transfers of
shares of Common Stock held by such Stockholder, no more than 45% (or such
lesser amount as such Stockholder elects to permit its Beneficial Owners to
transfer in its sole discretion) of the shares of Common
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Stock initially acquired by such Stockholder will be deemed to have been
Transferred for purposes of determining the direct or indirect ownership of
such shares under Section 382 of the Code; and (ii) with respect to any other
Stockholder (other than UBS Capital), the portion of a Beneficial Owner's
Beneficial Interest that may be transferred prior to the Restriction
Termination Date such that after taking into account such Transfer and all
prior Transfers of Beneficial Interest and all Transfers of shares of Common
Stock held by such Stockholder, no more than 45% (or such lesser amount as
such Stockholder elects to permit its Beneficial Owners to transfer in its
sole discretion) of the shares of Common Stock initially acquired by such
Stockholder will be deemed to have been Transferred for purposes of
determining the direct or indirect ownership of such shares under Section 382
of the Code. Each Stockholder shall determine the Transfer Allotments for
its Beneficial Owners provided that the 45% limitation in the preceding
sentence is satisfied at all relevant times.
"TREASURY REGULATIONS" shall mean the regulations adopted under the
Code by the United States Secretary of the Treasury, as in effect from time
to time.
"UBS CAPITAL" means UBS Capital Corporation, a New York corporation.
"UBS GROUP" means UBS Capital and each UBS Permitted Transferee then
holding any Shares.
"UBS PERMITTED TRANSFEREE" means (A) any Affiliate of UBS Capital,
including co-investment entities established and controlled by UBS Capital
(collectively, "UBS Affiliates"), (B) any managing director, director,
officer or employee of UBS Capital or any UBS Affiliate or the heirs,
executors, administrators, testamentary trustee, custodians, legatees,
beneficiaries, spouses or lineal descendants of any of the foregoing persons
referred to in this clause (B) (collectively, "UBS Associates"); and (C) a
trust, the beneficiaries of which, or a corporation, limited liability
company or partnership, the stockholders, members or general or limited
partners of which, include only UBS Capital, UBS Affiliates or UBS Associates.
"UNRESTRICTED SECURITIES" means securities which are not restricted
securities within the meaning of Rule 144 promulgated under the Securities
Act of 1933, as amended.
"WARRANTS" means the warrants now or hereafter issued by the Company
entitling the holders thereof to purchase shares of the Class C Common Stock.
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2. RESTRICTIONS ON TRANSFER.
2.1 SECURITY LAWS RESTRICTIONS ON TRANSFER. Notwithstanding anything
herein to the contrary, each Stockholder agrees that, prior to making any
Transfer of any Shares (other than a Transfer to the Company or to another
Stockholder as required or permitted by this Agreement), such Stockholder
will give written notice to the Company describing the manner and terms of
such proposed Transfer, the identity of such proposed transferee and such
other information as the Company may reasonably request. Each such
Stockholder further agrees that such proposed Transfer will not be effected
until:
(a) the Company has notified such Stockholder that either:
(i) in the opinion of Company counsel, no registration
of such Shares under the Act is required in connection with such
proposed Transfer; or
(ii) a registration statement under the Act covering
such proposed disposition has been filed by the Company with
the Commission and has become effective under the Act; and
(b) the Company has notified such Stockholder that either:
(i) in the opinion of Company counsel, no registration
or qualification under the securities or "blue sky" laws of
any state is required in connection with such proposed disposition; or
(ii) compliance with applicable state securities or "blue sky"
laws has been effected.
The Company will use its best efforts to respond to any such notice from a
Stockholder within 15 days of its receipt of such notice, but in any event
shall respond to any such notice within 30 days.
2.2 COOPERATION OF COMPANY. In the case of any proposed Transfer under
Section 2.1, the Company will use reasonable efforts to comply with any such
applicable state securities or "blue sky" laws, but shall in no event be
required, in connection therewith, to qualify to do business in any state
where it is not then qualified or to take any action that would subject it to
tax or to the general service of process in any state where it is not then
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subject. The restrictions on Transfer contained in Section 2.1 shall be in
addition to, and not by way of limitation of, any other restrictions on
Transfer contained in any other section of this Agreement.
2.3 RULE 144 ACKNOWLEDGMENT. Each Stockholder acknowledges that such
Person is familiar with Rule 144 of the Rules and Regulations of the
Commission, as amended, promulgated pursuant to the Act ("Rule 144"), and
that such Person has been advised that Rule 144 permits, only under certain
circumstances, the resale of restricted securities such as the Shares being
purchased hereunder, but that Rule 144 is not currently, and may not in the
future become, available to permit resales by such Person of any Shares. Each
Stockholder understands that, to the extent that Rule 144 is not available,
such Person will be unable to sell any Shares without either registration
under the Act or the existence of another exemption from such registration
requirement, and that the Company has no obligation whatsoever (except as set
forth herein) to any Stockholder to register any Shares.
2.4 TRANSFER RESTRICTIONS FOR NOL PRESERVATION.
(a) Each Stockholder acknowledges that the Company has Net
Operating Loss Carryovers for United States federal income tax purposes and
understands that the ability of the Company to utilize such Net Operating
Loss Carryovers is subject to potential limitation under Section 382. The
term "Section 382" means Section 382 of the Code as interpreted and applied
in the Treasury Regulations, and any successor statute and regulations.
(b) Each Stockholder further understands that the potential
application of Section 382 depends upon the ultimate beneficial ownership of
the Section 382 Stock of the Company.
(c) Each Stockholder hereby represents that the individuals listed
on Schedule 2.4 hereto as the beneficial owners in that Stockholder
constitute all the Beneficial Owners in that Stockholder, except that, in the
case of UBS Capital, Schedule 2.4 does not list the Beneficial Owners of
Union Bank of Switzerland, the parent corporation of UBS Capital. For
purposes of this Section 2.4, the term "Beneficial Owner" shall, in
addition to the meaning set forth in Section 1 hereof, also include any
person who owns any direct or indirect, actual or beneficial interest
(including a constructive ownership interest under the attribution rules of
Section 382) in the Stockholder. The term "Beneficial Interest" shall mean
the interest of any Beneficial Owner in the Stockholder.
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(d) Each of P-1 Limited Partnership, P-2 Limited Partnership, P-3
Limited Partnership, and P-4 Limited Partnership agrees that without the
express written permission of the Company and (for so long as UBS Capital
remains a Significant Stockholder) UBS Capital (i) it will not Transfer any
shares of Section 382 Stock prior to the Three-Year Date and (ii) during the
period commencing on the Three-Year Date and ending on the Restriction
Termination Date it will not Transfer more than that number of shares of
Section 382 Stock, such that after taking into account such transfer and all
prior transfers of shares of Section 382 Stock held by such Stockholder and
all transfers of Beneficial Interests in such Stockholder, not more than 45%
of the shares of Section 382 Stock initially acquired by such Stockholder
will be deemed to have been transferred for purposes of determining the
direct or indirect ownership of such shares under Section 382 of the Code;
provided, however, that the transfer restrictions of this Section 2.4(d)
shall not apply to Transfers in connection with an Acquisition Proposal (as
defined in Section 4.1) pursuant to the provisions of Section 4 hereof. Each
of P-1 Limited Partnership, P-2 Limited Partnership, P-3 Limited Partnership
and P-4 Limited Partnership agrees that it shall not later than 30 days after
the date of this Agreement obtain the written agreement in the form of
Exhibit C attached hereto of each of its Beneficial Owners (i) not to
Transfer all or any portion of its Beneficial Interest prior to the
Three-Year Date and (ii) commencing on the Three-Year Date not to Transfer
more than such Beneficial Owner's Transfer Allotment. Notwithstanding the
foregoing, Transfers of Beneficial Interests in P-1 Limited Partnership, P-2
Limited Partnership, P-3 Limited Partnership, or P-4 Limited Partnership by a
Beneficial Owner who is an individual to family members (as described in
Section 382(l)(3)(A)(i) of the Code) or Transfers after the Three-Year Date
of the type described in Section 382(l)(3)(B) of the Code shall be permitted
provided that (i) such Beneficial Owner provides to the Company an opinion of
counsel, in form and substance reasonably satisfactory to the Company and
(for so long as UBS Capital remains a Significant Stockholder) UBS Capital,
that such Transfer will be governed by Section 382(l)(3)(A)(i) or Section
382(l)(3)(B) of the Code, as the case may be, and (ii) such Transfer
otherwise complies with the provisions of this Agreement.
(e) Each Stockholder (provided, however, that UBS Capital shall
not be subject to clause (ii) of this sentence) other than P-1 Limited
Partnership, P-2 Limited Partnership, P-3 Limited Partnership and P-4 Limited
Partnership agrees that (i) it will not Transfer, prior to the Restriction
Termination Date, more than that number of
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shares of Section 382 Stock, such that after taking into account such
transfer and all prior transfers of shares of Section 382 Stock held by such
Stockholder and all transfers of Beneficial Interests in such Stockholder,
not more than 45% of the shares of Section 382 Stock initially acquired by
such Stockholder will be deemed to have been transferred for purposes of
determining the direct or indirect ownership of such shares under Section 382
of the Code, and (ii) that it shall obtain the written agreement in the form
of Exhibit C attached hereto of each Beneficial Owner not to Transfer more
than its Transfer Allotment; provided, however, that the transfer
restrictions of this Section 2.4(e) shall not apply to Transfers in
connection with an Acquisition Proposal pursuant to the provisions of Section
4 hereof. Notwithstanding the foregoing, transfers of Beneficial Interests in
Stockholders other than P-1 Limited Partnership, P-2 Limited Partnership, P-3
Limited Partnership, or P-4 Limited Partnership by a Beneficial Owner who is
an individual to family members (as described in Section 382(l)(3)(A)(i) of
the Code) or transfers of the type described in Section 382(l)(3)(B) of the
Code shall be permitted provided that (i) such Beneficial Owner provides to
the Company an opinion of counsel, in form and substance reasonably
satisfactory to the Company and (for so long as UBS Capital remains a
Significant Stockholder) UBS Capital, that such transfer will be governed by
Section 382(l)(3)(A)(i) or Section 382(l)(3)(B) of the Code, as the case may
be, and (ii) such transfer otherwise complies with the provisions of this
Agreement.
(f) Upon request by the Company, each Stockholder (other than UBS
Capital for so long as it does not own any Common Stock) hereby agrees to
provide the Company with information concerning the ownership interests of
its Beneficial Owners in the form of statements that satisfy the requirements
of Treasury Regulation Section 1.382-2T(k)(1)(ii) (or any successor provision
thereof).
2.5 RESTRICTIONS ON TRANSFER FOR BENEFIT OF STOCKHOLDERS. Each
Stockholder agrees that such Stockholder will not Transfer any Shares (or any
direct or indirect interest therein) or any stock certificate representing
the same, now or hereafter at any time owned by him, except to a Permitted
Transferee or as required or permitted by the provisions of Sections 3, 4 and
5 of this Agreement.
3. FIRST REFUSAL RIGHTS.
3.1 RESTRICTIONS CUMULATIVE. The restrictions on transfer imposed
by this Section 3 on any Stockholder shall be in addition to, and not in lieu
of, the restrictions on transfer imposed by Sections 2, 4 and 5 of this
Agreement to
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the extent the same are otherwise applicable to such Stockholder.
3.2 BONA FIDE OFFERS.
(a) If any Stockholder desires to Transfer any Shares and such
Stockholder shall have received a bona fide arms' length written offer (a
"Bona Fide Offer") from a Person other than an Affiliate or Associate of
such Stockholder (the "Outside Party") for the Transfer of such Shares,
such Stockholder shall give written notice (the "Option Notice") to each
Originating Partnership, UBS Capital (acting as representative of the UBS
Group) and to the Company setting forth such desire, which notice shall set
forth at least the name and address of the Outside Party and the price and
terms of the Bona Fide Offer and shall be accompanied by a copy of the Bona
Fide Offer and evidence demonstrating, to the reasonable satisfaction of the
Originating Partnerships, UBS Capital and the Company, the Outside Party's
ability to consummate such offer. Upon the giving of such Option Notice,
each Originating Partnership and each member of the UBS Group (acting through
UBS Capital which shall act as the representative of the members of the UBS
Group for all purposes under this Section 3) (the "Initial Offerees") shall
have the option to purchase, at the price offered by the Outside Party in the
Bona Fide Offer, all or any portion of such Initial Offerees' allocation,
determined on a pro rata basis as between the Initial Offerees as provided in
paragraph (b) of this Section 3.2, of the Shares specified in the Option
Notice, said option to be exercised within ten Business Days following the
giving of such Option Notice, by giving a counter-notice (an "Initial
Offeree Counter-Notice") to the offering Stockholder (with a copy of such
Initial Offeree Counter-Notice to the other Initial Offerees and to the
Company). In the event that a determination must be made (as described
below) as to the fair market value of non-cash consideration, the ten
Business Day period referred to in the immediately preceding sentence shall
be extended to such greater period of time, not to exceed 20 Business Days
after said Option Notice, specified in good faith by a disinterested majority
of the Board. In the event that the Bona Fide Offer provides, in whole or in
part, for non-cash consideration, the "price" offered by the Outside Party
shall be deemed to be the amount of cash, if any, provided in the Bona Fide
Offer plus the fair market value of the non-cash consideration as determined
in good faith by a disinterested majority of the Board; PROVIDED, HOWEVER,
that if the non-cash consideration consists of shares that are listed or
admitted to trading on an Exchange or quoted through NASDAQ or any similar
organization, the fair market value of such Shares shall be deemed to equal
the average of
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the daily closing prices per share of such Shares for the 20 consecutive
trading days immediately preceding the date of public announcement of the
event giving rise to the determination of fair market value or, if no such
public announcement is made with respect to such event, the average of the
daily closing prices per share of such Shares for the 20 consecutive days
immediately preceding the day as of which fair market value is being
determined. The closing price for each day shall be determined in accordance
with the last sentence of paragraph (a) of the definition of "Fair Market
Value" set forth in Section 1 hereof.
(b) The allocation of Shares, other than Preferred Stock, specified
in an Option Notice as between the Initial Offerees shall be made based on
the Pro Rata allocation of Shares (other than Preferred Stock) held by the
Initial Offerees when the Option Notice is given. The allocation of Shares
of Preferred Stock specified in an Option Notice as between the Initial
Offerees shall be made based on the relative aggregate redemption value of
the Preferred Stock held by the Initial Offerees when the Option Notice is
given. Notwithstanding the foregoing, if the Stockholder which wishes to
Transfer Shares is an Initial Offeree, the other Initial Offerees shall have
the option to purchase all or any part of the Shares specified in the Option
Notice.
(c) If an Initial Offeree either does not exercise its option to
purchase Shares specified in an Option Notice or exercises such option to
purchase fewer than the number of Shares allocated to such Initial Offeree,
and one or more other Initial Offerees exercised their option to purchase the
entire amount of Shares so allocated to them, then each such other Initial
Offeree shall have the option to purchase those Shares as to which the option
to purchase had not been exercised, subject to allocation between them in
accordance with paragraph 3.2(b). Such option to purchase shall be
exercisable for ten Business Days after the giving of the Initial Offeree
Counter-Notice by such other Initial Offeree or the expiration of the period
within which such Initial Offeree Counter-Notice could have been given, and
shall be exercised by giving a further counter-notice (a "Reallocation
Exercise Notice") to the offering Stockholder (with a copy of such
Reallocation Exercise Notice to the other Initial Offerees and to the
Company).
(d) Subject to paragraph (e) and (f) of this Section 3.2, if any
and all of the Initial Offerees elect to purchase such Shares, each such
electing Initial Offeree shall be obligated to purchase, and such Stockholder
shall be obligated to sell, such Shares at a closing to be held on
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the 30th Business Day after the giving of the Initial Offeree Counter-Notice
(or, if two or more Initial Offeree Counter-Notices were given, the giving of
the latest) at the principal executive offices of the Company, or at such
other time and place as may be mutually acceptable to each purchasing Initial
Offeree and such selling Stockholder. The closing of any such purchase by an
Initial Offeree may, at the election of the purchasing Initial Offeree, be
delayed up to 30 Business Days in order to permit such acquisition of such
Shares to be made in conformity with applicable laws, including the HSR Act.
(e) Subject to paragraph (f) of this Section 3.2, if the Initial
Offerees do not elect to purchase all of such Shares proposed to be sold by
such Stockholder within the time limits specified in paragraphs (a) and (c)
of this Section 3.2, then the Company shall have the option, exercisable by
the delivery of a counter-notice to such Stockholder no later than 15
Business Days following the later of (x) the date of the latest Initial
Offeree Counter-Notice or Reallocation Exercise Notice or (y) the expiration
of any period within which a Reallocation Exercise Notice may be given, to
purchase, at the price offered by the Outside Party in the Bona Fide Offer,
all or any portion of the Shares specified in the Option Notice and not
purchased by the Initial Offerees. In the event that the Company elects to
purchase Shares pursuant to this Section 13.2(e), the Company will be
obligated to purchase, and such Stockholder shall be obligated to sell, such
Shares at a closing (which shall be the closing for all Shares being
purchased in connection with such Option Notice) to be held on the 30th
Business Day after the delivery of the Company's counter-notice to such
Stockholder at the principal executive offices of the Company, or at such
other time and place as may be mutually acceptable to each purchasing Initial
Offeree, the Company and such Selling Stockholder. The closing of any such
purchase by the Company may, at the election of the Company or any purchasing
Initial Offeree, be delayed up to 30 Business Days in order to permit such
acquisition of such Shares to be made in conformity with applicable laws,
including the HSR Act.
(f) If the Initial Offerees and the Company elect to purchase fewer
than all of the Shares subject to the Bona Fide Offer within the time limits
specified above, then the Initial Offerees and the Company shall have no
right to purchase any of such Shares under this Section 3.2 as a result of
such Option Notice, and the offering Stockholder, at any time within a period
of four months from the giving of said Option Notice, may Transfer all (but
not less than all) of the Shares specified in the Option Notice to the
Outside Party at the price and on the terms contained in the
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Bona Fide Offer; provided, however, that in the event such offering
Stockholder has not so Transferred said Shares to the Outside Party within
said four-month period, then said Shares thereafter shall continue to be
subject to all of the restrictions contained in this Agreement as though no
Option Notice had ever been given.
(g) At the closing of any purchase of certificated Shares pursuant
to this Section 3.2, the selling Stockholder shall deliver certificates
representing such Shares duly endorsed for transfer and accompanied by all
requisite stock transfer taxes. Any Shares purchased pursuant to this
Section 3.2 shall be free and clear of any and all Liens (other than those
arising under this Agreement) and at the closing of the purchase the selling
Stockholder shall represent and warrant to such effect and to the effect that
such selling Stockholder is the beneficial owner of such Shares. The Person
making such purchase shall deliver at such closing, by certified or bank
check, payment in full for the Shares being purchased by such Person. At
such closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
(h) If, in any instance, an Originating Partnership or the Company
elects not to exercise its rights hereunder or elects to waive such rights,
such election shall not constitute a waiver of such Person's rights to
receive an Option Notice in the case of any Transfer subsequently proposed by
such or any other Stockholder.
(i) Any restriction on Transfer of Shares imposed other than by
this Agreement shall not be superseded by the provisions of this Section 3.2,
and any purchase of Shares under this Section 3.2 may be effected only in
accord with this Section 3.2 and such other restrictions.
(j) Each notice required to be given to a member of the UBS Group
under this Section 3 shall be deemed given if delivered to UBS Capital. Each
notice required to be given by a member of the UBS Group under this Section 3
shall only be deemed given if delivered by UBS Capital.
3.3 INVOLUNTARY TRANSFERS.
(a) Each Stockholder shall notify the Company, the Originating
Partnerships and UBS Capital promptly upon the occurrence of an Involuntary
Transfer of Shares (including Involuntary Transfers of any Beneficial
Interest by a Beneficial Owner). If an Involuntary Transfer of any of the
Shares owned by any Stockholder shall occur, the Originating Partnerships,
each member of the UBS Group
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(acting through UBS Capital as the representative of the UBS Group) and the
Company shall have the same rights of first refusal under Section 3.2 above
with respect thereto (the "Transferred Shares") as if the Involuntary
Transfer had been a proposed voluntary Transfer by such Stockholder, except
that:
(i) the periods within which such rights must be exercised
shall run from the date notice of the Involuntary Transfer is received by
the Company, the Originating Partnerships and UBS Capital from the
Stockholder or its legal representatives with respect to which such
Involuntary Transfer has occurred;
(ii) such rights shall be exercised by notice to the involuntary
transferee rather than to the Stockholder with respect to which such
Involuntary Transfer has occurred; and
(iii) the purchase price of any Transferred Shares shall be the Fair
Market Value of such Transferred Shares on the date that the rights of
first refusal provided by this Section 3.3 are exercised with respect to
such Transferred Shares.
(b) At the closing of any purchase of Transferred Shares, the
involuntary transferee shall deliver certificates representing the
Transferred Shares being purchased by the relevant Originating Partnership,
members of the UBS Group or the Company, as the case may be, duly endorsed
for transfer and accompanied by all requisite stock transfer taxes, and such
Shares shall be free and clear of any and all Liens arising through the
action or inaction of the involuntary transferee (other than those arising
under this Agreement) and the involuntary transferee shall represent and
warrant to such effect and to the effect that such involuntary transferee is
the beneficial owner of such Shares. At the closing of any such purchase,
the Stockholder which was the transferor in respect of the Involuntary
Transfer shall represent and warrant to the purchaser or purchasers that such
Stockholder had conveyed to the involuntary transferee good and valid title
to the Transferred Shares. The Person making such purchase shall deliver at
closing, by a certified or bank check, payment in full of the purchase price,
for the Shares being purchased by such Person. At such closing, all of the
parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate.
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(c) In the event that the provisions of this Section 3.3 shall be
held to be unenforceable with respect to any particular Involuntary
Transfer of Shares, the Originating Partnerships and the Company shall
have a right of first refusal as set forth in Section 3.2 hereof if the
involuntary transferee subsequently obtains a Bona Fide Offer for and
desires to Transfer such Shares.
3.4 APPLICATION OF FIRST REFUSAL RIGHTS. The first refusal rights
provided in Sections 3.2 and 3.3 shall not apply to any Transfer of Shares:
(a) to the Company or to a Permitted Transferee;
(b) pursuant to an effective registration statement under the Act;
(c) by an Other Stockholder (as defined in Section 5.1) pursuant
to Section 5 below;
(d) by an Other Stockholder (as defined in Section 6.1) pursuant
to Section 6 below;
(e) by a Drag-Along Stockholder (as defined in Section 4.1)
pursuant to Section 4 below; or
(f) in any one transaction or series of related transactions
(other than to a Permitted Transferee) in which the Proposed Transferor
transfers 10,000 or fewer shares of Common Stock or 1,000 or fewer
shares of Preferred Stock, subject to an aggregate maximum per
transferor of 25,000 shares of Common Stock and 2,500 shares of
Preferred Stock, and provided that the transferee enters into a written
agreement in form and substance reasonably satisfactory to the Company
to be bound by the terms and conditions of this Agreement.
3.5 TERMINATION OF FIRST REFUSAL RIGHTS. Notwithstanding anything
herein to the contrary, the rights of first refusal provided in this Section
3 shall terminate, with respect to all Shares held by each Stockholder, upon
the occurrence of the Qualified IPO Date. In addition to termination
pursuant to the preceding sentence, all first refusal rights of UBS Capital
and the UBS Group under Sections 3.2 and 3.3 hereof shall terminate at such
time as UBS Capital is no longer a Significant Stockholder.
Holdings Stockholders Agreement
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4. THIRD PARTY OFFER FOR ALL OUTSTANDING SHARES.
4.1 "DRAG-ALONG" OBLIGATIONS. If either Originating Partnership
shall receive an offer in writing from a third party which is not an
Affiliate of such Originating Partnership (a "Third Party Offeror") to
purchase all of the issued and outstanding Common Stock held by the
Originating Partnerships, to effect a business combination of the Company
with such Third Party Offeror or an Affiliate thereof or to purchase all or
substantially all the assets of the Company (each an "Acquisition
Proposal"), and the Originating Partnerships desire to accept or cause the
Company to accept such Acquisition Proposal, both of the Originating
Partnerships shall deliver a notice (an "Acquisition Notice") to the
Company (which shall deliver a copy of such Acquisition Notice to each of the
other Stockholders), which Acquisition Notice shall contain a copy of such
Acquisition Proposal, including the name and address of the Third Party
Offeror and the terms of the Acquisition Proposal. If any other Stockholder
receives any Acquisition Proposal (which, for this purpose, includes an offer
to purchase all of the issued and outstanding Common Stock or Common Stock
and any other securities exercisable for or convertible into Common Stock but
not an offer to purchase only such other Stockholder's Common Stock or Common
Stock and any other securities exercisable for or convertible into Common
Stock) such Stockholder shall promptly transmit such Acquisition Proposal to
the Company and each Originating Partnership (which the Company or the
Originating Partnerships may elect not to pursue without any liability or
obligation to any Stockholder or the Company). The other Stockholders (the
"Drag-Along Stockholders") severally agree that, subject to Section 4.3,
upon receipt of such Acquisition Notice, they shall be obligated to sell all
of their Common Stock and any other securities exercisable for or convertible
into Common Stock to the Third Party Offeror upon the terms and conditions
set forth in the Acquisition Proposal or, as the case may be, to vote their
Shares in favor of the merger or sale of all or substantially all of the
assets of the Company as described in the Acquisition Proposal, and otherwise
to take all actions necessary or appropriate to cause the Company to
consummate the proposed transaction. In any such transaction, all of such
shares shall be purchased at, or be converted into the right to receive, the
same price per share of Common Stock and any other securities exercisable for
or convertible into Common Stock shall be purchased at, or be converted into
the right to receive, an aggregate amount equal to (a) the aggregate purchase
price of the number of shares which the holder of such securities is entitled
to receive upon exercise or conversion of such securities, at the purchase
price per share of Common Stock provided in the Acquisition Proposal,
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less (b) the aggregate exercise price or conversion price, as the case may
be, of such securities, but not less than zero.
4.2 TERMINATION OF DRAG-ALONG OBLIGATIONS. Notwithstanding anything
herein to the contrary, the rights and obligations provided for in this
Section 4 shall terminate, with respect to all Shares held by any
Stockholder, upon the earlier of (i) the occurrence of the Qualified IPO Date
and (ii) if UBS Capital so elects by delivery of written notice to the
Company, the occurrence of a Change of Control.
4.3 RESTRICTIONS CUMULATIVE. The restrictions on transfer imposed by
this Section 4 on any Stockholder shall be in addition to, and not in lieu
of, the restrictions on transfer imposed by Section 2, 3 and 5 of this
Agreement to the extent the same are otherwise applicable to such Stockholder.
4.4 LIMITATIONS ON DRAG-ALONG.
(a) In connection with any sale (a "Drag-Along Sale") of Common Stock
or any other securities exercisable for or convertible into shares of Common
Stock pursuant to this Section 4, (i) the only representation and warranty or
covenant which any Drag-Along Stockholder shall be required to make in
connection with the Drag-Along Sale is a representation and warranty with
respect to its own ownership of the shares of Common Stock or other
securities to be sold by it and its ability to convey title thereto free and
clear of all Liens and (ii) the liability of any Drag-Along Stockholder with
respect to any representation and warranty made in connection with the
Drag-Along Sale shall be the several liability of such Drag-Along Stockholder
(and not joint with any other person). Notwithstanding the foregoing, in the
event that the Originating Partnerships are required in connection with such
sale to make any additional representations and warranties or enter into any
additional covenants, each Drag-Along Stockholder shall be required to
severally indemnify the Originating Partnerships and any other persons making
such additional representations and warranties or entering into such
additional covenants for such Drag-Along Stockholder's pro rata share (based
on the consideration being received by the Originating Partnerships and
Drag-Along Stockholders for the securities being sold) of any liabilities
resulting from such representations and warranties or covenants; PROVIDED,
HOWEVER, that such indemnification liability shall be limited to an amount no
greater than the amount of proceeds actually received by such Drag-Along
Stockholder in the Drag-Along Sale.
Holdings Stockholders Agreement
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(b) For purposes of this Section 4, the purchase price per share of
Common Stock shall include, in addition to the purchase price per share
provided in the Acquisition Proposal, any and all other amounts payable to
Aurora Capital Partners L.P. or any Affiliate or Associate thereof in
connection with the Drag-Along Sale, including any amounts payable pursuant
to any employment agreement, consulting agreement or similar arrangement;
PROVIDED, HOWEVER, that in no event shall the purchase price per share be
deemed to include any amounts payable pursuant to or the payment of which is
contemplated by the Management Services Agreement.
(c) Notwithstanding the provisions of Section 4.1, without the consent
of UBS Capital, no Drag-Along Stockholder shall be required to participate in
an Acquisition Proposal pursuant to the provisions of Section 4.1 if less
than 70% of the consideration to be received by such Drag-Along Stockholder
in connection with such Acquisition Proposal consists of cash and
Unrestricted Securities.
5. "TAG-ALONG" RIGHTS FOR SALES BY PARTNERSHIP STOCKHOLDERS.
5.1 TAG-ALONG SALES BY PARTNERSHIP STOCKHOLDERS. If P-3 Limited
Partnership, P-4 Limited Partnership or any member of the Originating
Partnership Group (for purposes of this Section 5, the "Proposed
Transferor") at any time or from time to time, in one transaction or in a
series of related transactions, desires to Transfer (for purposes of this
Section 5, a "Tag-Along Sale") shares of Common Stock and/or Preferred
Stock to any Person (including the Company or any Subsidiary of the Company),
then each of the other Stockholders (other than P-3 Limited Partnership, P-4
Limited Partnership and any member of the Originating Partnership Group) (for
purposes of this Section 5, collectively, the "Other Stockholders") shall
have the right, but not the obligation, to elect that the Proposed Transferor
be obligated to require, as a condition to such Tag-Along Sale, that the
proposed purchaser purchase from each such electing Other Stockholder:
(a) up to the number of shares of Common Stock derived by multiplying
the total number of shares of Common Stock owned by or issuable to such
electing Other Stockholder by a fraction, the numerator of which is equal to
the number of Shares of Common Stock then owned by or issuable to the
Proposed Transferor that are to be purchased by the proposed purchaser
(without giving effect to any reduction in such number of shares by reason of
any Other Stockholder's election to exercise the "tag-along" rights
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<PAGE>
provided in this Section 5 in connection with such transaction) and the
denominator of which is the total number of shares of Common Stock owned by
or issuable to the Proposed Transferor prior to such sale; and
(b) up to the number of shares of Preferred Stock having an aggregate
redemption value equal to the amount derived by multiplying the aggregate
redemption value of the shares of Preferred Stock owned by or issuable to
such electing Other Stockholder times a fraction, the numerator of which is
the aggregate redemption value of the shares of Preferred Stock then owned by
or issuable to the Proposed Transferor that are to be purchased by the
proposed purchaser (without giving effect to any reduction in such number of
shares by reason of any Other Stockholder's election to exercise the
"tag-along" rights provided in this Section 5 in connection with such
transaction) and the denominator of which is the aggregate redemption value
of the shares of Preferred Stock owned by or issuable to the Proposed
Transferor prior to such sale;
PROVIDED, HOWEVER, that if any Other Stockholder chooses not to sell any or
all Shares which such Other Stockholder may be entitled to sell under this
Section 5.1, and one or more of the Other Stockholders is exercising its
right to sell the maximum number of shares permissible (for purposes of this
Section 5, each, a "Reoffer Stockholder"), then each Reoffer Stockholder
and the Proposed Transferor shall have the option to sell such Shares as to
which the option to sell has not been exercised (for purposes of this Section
5, the "Reoffer Shares"), subject to allocation among them pro rata based
on their respective ownership of shares of Common Stock or Preferred Stock,
as the case may be.
Any such sales by any Other Stockholder shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Proposed Transferor, except
that (i) the only representation and warranty or covenant which any Other
Stockholder shall be required to make in connection with the Tag-Along Sale
is a representation or warranty with respect to its own ownership of the
Shares to be sold by it and its ability to convey title thereto free and
clear of all Liens and (ii) the liability of any Tag-Along Stockholder with
respect to any representation and warranty made in connection with the
Tag-Along Sale shall be the several liability of such Other Stockholder (and
not joint with any other person). Notwithstanding the foregoing, in the
event that the Proposed Transferor is required in connection with such sale
to make any additional representations and warranties or enter into any
additional covenants, each Other Stockholder shall be required to severally
indemnify the Proposed Transferor and any other persons making such
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<PAGE>
additional representations and warranties or entering into such additional
covenants for such Other Stockholder's pro rata share (based on the
consideration being received by the Proposed Transferor and Other
Stockholders for the securities being sold) of any liabilities resulting from
such representations and warranties or covenants; PROVIDED, HOWEVER, that
such indemnification liability shall be limited to an amount no greater than
the amount of proceeds actually received by such Other Stockholder in the
Tag-Along Sale. Each Other Stockholder whose shares are sold in a Tag-Along
Sale shall be required to bear a proportionate share of the expenses of the
transaction, including, without limitation, legal, accounting and investment
banking fees and expenses.
5.2 NOTICE OF TAG-ALONG OPPORTUNITY. The Proposed Transferor
participating in a Tag-Along Sale shall promptly (and in no event less than
30 Business Days prior to the consummation thereof) provide the Company with
notice (for purposes of this Section 5, the "Proposed Transferor
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<PAGE>
Notice") of the proposed Tag-Along Sale (which the Company shall transmit to
each Other Stockholder within three Business Days of its receipt thereof)
containing the following:
(a) the name and address of the proposed Transferee of the Shares
in the Tag-Along Sale;
(b) the number of shares of Common Stock and Preferred Stock
proposed to be Transferred by the Proposed Transferor in the event none of
the Other Stockholders elects to participate;
(c) the proposed amount and form of consideration to be paid for
such Shares and the terms and conditions of payment offered by the proposed
Transferee;
(d) the aggregate number of shares of Common Stock and Preferred
Stock held of record by such Proposed Transferor as of the date of the notice
(for purposes of this Section 5, the "Notice Date") from the Proposed
Transferor to the Company;
(e) the aggregate number of shares of Common Stock and Preferred
Stock held of record as of the Notice Date by all Other Stockholders as a
group;
(f) the maximum number of shares of Common Stock and Preferred
Stock each such Other Stockholder is entitled to include in the Tag-Along
Sale (as computed in accordance with the equations set forth in Section 5.1);
and
(g) that the proposed Transferee has been informed of the
"tag-along" rights provided for in Section 5.1.
5.3 NOTICE AND TERMS OF ACCEPTANCE OF TAG-ALONG OPPORTUNITY. If an
Other Stockholder desires to participate in such Tag-Along Sale, such Other
Stockholder shall provide written notice (for purposes of this Section 5, the
"Tag-Along Notice") to such Proposed Transferor not later than 10 Business
Days after the Notice Date setting forth the number of shares of Common Stock
and Preferred Stock, if any, such Other Stockholder elects to include in the
Tag-Along Sale. In the event that any Other Stockholder chooses not to sell
any or all Shares which such Other Stockholder may be entitled to sell under
Section 5.1, the Proposed Transferor participating in the Tag-Along Sale
shall promptly (and in no event less than 15 Business Days prior to the
consummation of such Tag-Along Sale) provide the
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<PAGE>
Company with notice (for purposes of this Section 5, the "Reoffer Notice")
of such Reoffer Shares available for sale pursuant to Section 5.1 (which the
Company shall transmit to each Reoffer Stockholder within 3 Business Days of
its receipt thereof). If a Reoffer Stockholder desires to participate in the
sale of any of the Reoffer Shares, such Reoffer Stockholder shall provide
written notice thereof to such Proposed Transferor not later than 5 Business
Days after receipt of the Reoffer Notice setting forth the number of
additional shares of Common Stock and Preferred Stock, if any, such Reoffer
Stockholder elects to include in the Tag-Along Sale. An Other Stockholder
may elect to include Shares in a Tag-Along Sale only if such Other
Stockholder elects to include in such Tag-Along Sale a ratio of shares of
Common Stock to shares of Preferred Stock equal to the ratio of shares of
Common Stock to shares of Preferred Stock proposed to be sold by the Proposed
Transferor in the Tag-Along Sale; PROVIDED, HOWEVER, that (i) if an Other
Stockholder is selling all shares of Common Stock owned by it and its
Affiliates (including all shares of Common Stock issuable upon the exercise
of Warrants and Options owned by it and its Affiliates) in such Tag-Along
Sale, then the number of shares of Preferred Stock sold by such Other
Stockholder in the Tag-Along Sale shall not be limited by the provisions of
this sentence and (ii) if an Other Stockholder is selling all of the shares
of Preferred Stock owned by it and its Affiliates in such Tag-Along Sale,
then the number of shares of Common Stock sold by such Other Stockholder in
the Tag-Along Sale shall not be limited by the provisions of this sentence.
The Tag-Along Notice and any notice given by an Other Stockholder to
participate in the sale of Reoffer Shares shall constitute such Other
Stockholder's binding agreement to sell such Shares as are included therein
on the terms and conditions applicable to such sale (including the
requirements of this Section 5). In the event that the proposed transferee
does not purchase the shares of the Proposed Transferor, then the proposed
Tag-Along Sale by the Other Stockholders to such proposed transferee shall
not take place.
5.4 APPLICATION OF TAG-ALONG PROVISIONS. The provisions of this Section
5 shall not apply to:
(a) any transaction in which shares of Common Stock or Preferred
Stock are proposed to be sold publicly pursuant to a registration statement
filed under the Act;
(b) any Transfer to a Permitted Transferee;
(c) any one transaction or series of related transactions involving
the Transfer (other than to a
Holdings Stockholders Agreement
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<PAGE>
Permitted Transferee) by the Proposed Transferor of 10,000 or fewer shares of
Common Stock or 1,000 or fewer shares of Preferred Stock, subject to an
aggregate maximum per transferor of 25,000 shares of Common Stock and 2,500
shares of Preferred Stock, and provided that the transferee enters into a
written agreement in form and substance reasonably satisfactory to the
Company to be bound by the terms and conditions of this Agreement;
(d) any shares of Common Stock or Preferred Stock proposed to be
Transferred by the Proposed Transferor which are purchased by the Company or
any Other Stockholder pursuant to Section 3;
(e) any Transfer of shares of Common Stock in connection with an
Acquisition Proposal subject to the provisions of Section 4 hereof; or
(f) any Transfer by an Other Stockholder (as defined in Section
6.1) pursuant to Section 6 below.
5.5 TERMINATION OF TAG-ALONG RIGHTS. Notwithstanding anything herein to
the contrary, the rights and obligations provided for in this Section 5 shall
terminate, with respect to all Shares (other than Preferred Stock) held by
each Other Stockholder, upon the occurrence of the Qualified IPO Date.
5.6 RESTRICTIONS CUMULATIVE. The restrictions on transfer imposed by
this Section 5 on any Stockholder shall be in addition to, and not in lieu
of, the restrictions on transfer imposed by Sections 2, 3 and 4 of this
Agreement to the extent the same are otherwise applicable to such Stockholder.
6. "TAG-ALONG" RIGHTS FOR SALES BY UBS GROUP.
6.1 TAG-ALONG SALES BY UBS GROUP. If any member of the UBS Group (for
purposes of this Section 6, the "Proposed Transferor") at any time or from
time to time, in one transaction or in a series of related transactions,
desires to Transfer (for purposes of this Section 6, a "Tag-Along Sale")
shares of Preferred Stock to any Person (including the Company or any
Subsidiary of the Company), then each of P-1 Limited Partnership, P-2 Limited
Partnership, P-3 Limited Partnership and P-4 Limited Partnership (for
purposes of this Section 6, collectively, the "Other Stockholders") shall
have the right, but not the obligation, to elect that the Proposed Transferor
be obligated to require, as a condition to such Tag-Along Sale, that the
proposed purchaser purchase from each such electing
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Other Stockholder up to the number of shares of Preferred Stock having an
aggregate redemption value equal to the amount derived by multiplying the
aggregate redemption value of the shares of Preferred Stock owned by or
issuable to such electing Other Stockholder times a fraction, the numerator
of which is the aggregate redemption value of the shares of Preferred Stock
then owned by or issuable to the Proposed Transferor that are to be purchased
by the proposed purchaser (without giving effect to any reduction in such
number of shares by reason of any Other Stockholder's election to exercise
the "tag-along" rights provided in this Section 6 in connection with such
transaction) and the denominator of which is the aggregate redemption value
of the shares of Preferred Stock owned by or issuable to the Proposed
Transferor prior to such sale; PROVIDED, HOWEVER, that if any Other
Stockholder chooses not to sell any or all Shares which such Other
Stockholder may be entitled to sell under this Section 6.1, and one or more
of the Other Stockholders is exercising its right to sell the maximum number
of shares permissible (for purposes of this Section 6, each, a "Reoffer
Stockholder"), then each Reoffer Stockholder and each member of the UBS
Group shall have the option to sell such Shares as to which the option to
sell has not been exercised (for purposes of this Section 6, the "Reoffer
Shares"), subject to allocation among them pro rata based on their
respective ownership of shares of Preferred Stock.
Any such sales by any Other Stockholder shall be on the same terms
and conditions as the proposed Tag-Along Sale by the Proposed Transferor,
except that (i) the only representation and warranty or covenant which any
Other Stockholder shall be required to make in connection with the Tag-Along
Sale is a representation or warranty with respect to its own ownership of the
Shares to be sold by it and its ability to convey title thereto free and
clear of all Liens and (ii) the liability of any Tag-Along Stockholder with
respect to any representation and warranty made in connection with the
Tag-Along Sale shall be the several liability of such Other Stockholder (and
not joint with any other person). Notwithstanding the foregoing, in the
event that the Proposed Transferor is required in connection with such sale
to make any additional representations and warranties or enter into any
additional covenants, each Other Stockholder shall be required to severally
indemnify the Proposed Transferor and any other persons making such
additional representations and warranties or entering into such additional
covenants for such Other Stockholder's pro rata share (based on the
consideration being received by the Proposed Transferor and Other
Stockholders for the securities being sold) of any liabilities resulting from
such representations and warranties or covenants; PROVIDED,
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HOWEVER, that such indemnification liability shall be limited to an amount no
greater than the amount of proceeds actually received by such Other
Stockholder in the Tag-Along Sale. Each Other Stockholder whose shares are
sold in a Tag-Along Sale shall be required to bear a proportionate share of
the expenses of the transaction, including, without limitation, legal,
accounting and investment banking fees and expenses.
6.2 NOTICE OF TAG-ALONG OPPORTUNITY. The Proposed Transferor
participating in a Tag-Along Sale shall promptly (and in no event less than
30 Business Days prior to the consummation thereof) provide the Company with
notice (for purposes of this Section 6, the "Proposed Transferor Notice") of
the proposed Tag-Along Sale (which the Company shall transmit to each Other
Stockholder within three Business Days of its receipt thereof together with
any additional information which the Company elects to provide to the other
Stockholders in connection therewith) containing the following:
(a) the name and address of the proposed Transferee of
the Shares in the Tag-Along Sale;
(b) the number of shares of Preferred Stock proposed to
be Transferred by the Proposed Transferor in the event none of the
Other Stockholders elects to participate;
(c) the proposed amount and form of consideration to be
paid for such Shares and the terms and conditions of payment offered
by the proposed Transferee;
(d) the aggregate number of shares of Preferred Stock
held of record by such Proposed Transferor as of the date of the
notice (for purposes of this Section 6, the "Notice Date") from the
Proposed Transferor to the Company;
(e) that the proposed Transferee has been informed of
the "tag-along" rights provided for in Section 6.1.
6.3 NOTICE AND TERMS OF ACCEPTANCE OF TAG-ALONG OPPORTUNITY. If
an Other Stockholder desires to participate in such Tag-Along Sale, such
Other Stockholder shall provide written notice (for purposes of this Section
6, the "Tag-Along Notice") to such Proposed Transferor not later than 10
Business Days after the Notice Date setting forth the number of shares of
Preferred Stock, if any, such Other Stockholder elects to include in the
Tag-Along Sale. In the
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event that any Other Stockholder chooses not to sell any or all Shares which
such Other Stockholder may be entitled to sell under Section 6.1, the
Proposed Transferor participating in the Tag-Along Sale shall promptly (and
in no event less than 15 Business Days prior to the consummation of such
Tag-Along Sale) provide the Company with notice (for purposes of this Section
6, the "Reoffer Notice") of such Reoffer Shares available for sale pursuant
to Section 6.1 (which the Company shall transmit to each Reoffer Stockholder
within 3 Business Days of its receipt thereof). If a Reoffer Stockholder
desires to participate in the sale of any of the Reoffer Shares, such Reoffer
Stockholder shall provide written notice thereof to such Proposed Transferor
not later than 5 Business Days after receipt of the Reoffer Notice setting
forth the number of additional shares of Preferred Stock, if any, such
Reoffer Stockholder elects to include in the Tag-Along Sale. The Tag-Along
Notice and any notice given by an Other Stockholder to participate in the
sale of Reoffer Shares shall constitute such Other Stockholder's binding
agreement to sell such Shares as are included therein on the terms and
conditions applicable to such sale (including the requirements of this
Section 6). In the event that the proposed transferee does not purchase the
shares of the Proposed Transferor, then the proposed Tag-Along Sale by the
Other Stockholders to such proposed transferee shall not take place.
6.4 APPLICATION OF TAG-ALONG PROVISIONS. The provisions of this
Section 6 shall not apply to:
(a) any transaction in which shares of Preferred Stock
are proposed to be sold publicly pursuant to a registration statement
filed under the Act;
(b) any Transfer to a Permitted Transferee;
(c) any one transaction or series of related transactions
involving the Transfer (other than to a Permitted Transferee) by
the Proposed Transferor of 1,000 or fewer shares of Preferred Stock,
subject to an aggregate maximum per transferor of 2,500 shares of
Preferred Stock, and provided that the transferee enters into a
written agreement in form and substance reasonably satisfactory to
the Company to be bound by the terms and conditions of this Agreement;
(d) any shares of Preferred Stock proposed to be
Transferred by the Proposed Transferor which are purchased by the
Company or any Other Stockholder pursuant to Section 3;
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(e) any Transfer by an Other Stockholder (as defined in
Section 5.1) pursuant to Section 5 above.
6.6 RESTRICTIONS CUMULATIVE. The restrictions on transfer imposed
by this Section 6 on any Stockholder shall be in addition to, and not in lieu
of, the restrictions on transfer imposed by Sections 2, 3 and 4 of this
Agreement to the extent the same are otherwise applicable to such Stockholder.
7. PREEMPTIVE RIGHTS OF UBS CAPITAL.
7.1 GRANT OF RIGHT. If at any time hereafter the Company proposes
to sell or issue any Common Stock or Preferred Stock or any securities
exercisable for or convertible into Common Stock or Preferred Stock or any
Subsidiary of the Company proposes to sell or issue any equity securities or
any securities exercisable for or convertible into equity securities ("New
Stock"), the Company shall provide to the UBS Group a priority subscription
right to purchase up to a proportionate amount of New Stock determined (i) in
the case of Common Stock, any securities exercisable for or convertible into
Common Stock or any securities to be issued by a Subsidiary, by multiplying
the number of shares of New Stock proposed to be sold or issued by the
Company or any Subsidiary of the Company by a fraction, the numerator of
which is the number of shares of any class of Common Stock then held by or
issuable to the UBS Group and the denominator of which is the number of
shares of all classes of Common Stock then issued and outstanding on a fully
diluted basis, excluding the shares held by the Company or any direct or
indirect subsidiary of the Company, (ii) in the case of Preferred Stock or
any securities exercisable for or convertible into Preferred Stock, by
multiplying the aggregate redemption value of the shares of New Stock
proposed to be sold or issued by the Company by a fraction, the numerator of
which is the aggregate redemption value of all shares of Preferred Stock then
held by or issuable to the UBS Group and the denominator of which is the
aggregate redemption value of all shares of Preferred Stock then issued and
outstanding on a fully diluted basis, excluding the shares held by the
Company or any Subsidiary of the Company; PROVIDED, HOWEVER, that such
priority subscription right shall not apply to any issuance or sale of New
Stock (a) all or substantially all of the net proceeds of which are used in
connection with, or which are issued as acquisition consideration in, the
acquisition of any business enterprise by the Company or any of its
Subsidiaries; (b) in any public offering; (c) pursuant to any compensation
plan for any director, officer or other employee of the Company or its
Subsidiaries; (d) issuable upon the exercise or conversion
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of any securities outstanding on the date of this Agreement; (e) issuable
upon the exercise or conversion of any securities issued after the date of
this Agreement, the issuance of which were subject to the provisions of the
this Section 7.1; (f) which is issued to the Company or any Subsidiary of the
Company; or (g) which is issued in connection with the establishment of a
joint venture with an unaffiliated third party.
7.2 EXERCISE OF RIGHT. If the Company proposes to undertake an
issuance or sale of New Stock to which the priority subscription right
granted under Section 7.1 applies, the Company shall give UBS Capital (as
representative of the members of the UBS Group) notice of its intention,
which notice shall describe the type of New Stock and the price and the
general terms upon which the Company proposes to issue or sell such New Stock
and which, if any offering materials are provided to the proposed purchasers,
shall be accompanied by a copy of such offering materials. UBS Capital shall
have ten Business Days from the date such notice is given to give the Company
notice of the election of the UBS Group to purchase all or any portion of the
proportionate amount of such New Stock set forth in Section 7.1 for the price
and upon the general terms specified in such notice, stating the quantity of
such New Stock to be purchased; PROVIDED, HOWEVER, that if the price so
specified is payable in whole or in part in property, the UBS Group may pay
in cash the fair market value of such property as determined by the Board in
good faith. If UBS Capital does not give such notice within such period, the
UBS Group shall be deemed to have waived its rights pursuant to this Section
7 with respect to such New Stock.
7.3 SALE UPON WAIVER. Notwithstanding the preceding provisions of
this Section 7, the Company may sell any portion of an issue of New Stock,
with respect to which such rights have been waived in writing by UBS Capital,
prior to the expiration of the ten Business Day period provided for by
Section 7.2.
7.4 TERMINATION OF PREEMPTIVE RIGHTS. Notwithstanding anything
herein to the contrary, the rights and obligations provided for in this
Section 7 shall terminate upon the occurrence of the Qualified IPO Date.
8. AFFILIATE TRANSACTIONS. For so long as UBS Capital is a
Stockholder, the Company shall not engage in, undertake or enter into, or
commit to engage in, undertake or enter into, and shall cause its
Subsidiaries not to engage in, undertake or enter into, or commit to engage
in, undertake or enter into, any agreement, transaction or arrangement (other
than an agreement, transaction or
Holdings Stockholders Agreement
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<PAGE>
arrangement providing for the payment of not more than $150,000 which has
been approved by an independent majority of the Board of Directors of the
Company) with any Affiliate of the Company, any Stockholder or any Affiliate
of any Stockholder, unless the Company, the respective Subsidiary of the
Company or the Company on behalf of such Subsidiary has obtained the written
consent of UBS Capital with respect to such agreement, transaction or
arrangement. If UBS Capital does not give written notice to the Company of
its disapproval of such agreement, transaction or arrangement within ten
Business Days after written notice of the proposed agreement, transaction or
arrangement is given to it, UBS Capital shall be deemed to have given its
written consent to such agreement, transaction or arrangement. The
restrictions contained in this Section 8 shall terminate upon the occurrence
of the Qualified IPO Date. Notwithstanding the foregoing, the provisions of
this Section 8 shall not apply to (i) agreements, transactions and
arrangements set forth in or contemplated by the Management Services
Agreement, (ii) agreements, transactions and arrangements between the Company
or any of its Subsidiaries and Union Bank of Switzerland, including, without
limitation, agreements, transactions and arrangements set forth in or
contemplated by the Facility Agreement, dated as of June 16, 1995, between
ABI Acquisition 2 PLC and Petrowax PA Inc. as initial borrowers, the
Companies named therein as initial guarantors, Union Bank of Switzerland as
arranger, Union Bank of Switzerland as facility agent, Union Bank of
Switzerland as security trustee and certain others, (iii) agreements,
transactions and arrangements set forth in or expressly contemplated by this
Agreement or any subscription agreement entered into on or before the date
hereof by the Company or any Subsidiary and (iv) agreements, transactions and
arrangements relating to the indemnification of officers and directors of the
Company and its Subsidiaries or the payment of reasonable and customary
directors' fees and reimbursement of directors' and officers' expenses.
9. SALE OF BUSINESS.
9.1 COOPERATION WITH UBS CAPITAL. Promptly after any
determination by the Board for the Company to consider undertaking a
transaction which would have as an intended result a Change of Control of the
Company, or cause the Company or any Subsidiary to undertake a transaction
which would have as an intended result a Change of Control of a Subsidiary or
a material operating division (a "Sale"), the Company will notify UBS Capital
with respect to the proposed Sale. If requested by UBS Capital, the Company
will consult with UBS Capital with respect to the terms and conditions on
which such Sale could be completed, including without
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<PAGE>
limitation the anticipated amount and form of consideration, the proposed
structure of the Sale, the estimated costs to the Company or the Subsidiary
of completing the Sale and any evaluation of the desirability of the Sale.
Notwithstanding the foregoing, the Company shall have no obligation to
prepare any document, other than a brief term sheet, for the express purpose
of conveying information to UBS Capital concerning a proposed Sale.
9.2 RECEIPT OF OFFER TO PURCHASE. If the Company receives a bona
fide, written third-party offer to complete a Sale (the "Third Party Offer"),
the Company shall not accept such offer or commit the Company or a Subsidiary
to complete the Sale unless the Company notifies UBS Capital of the Offer and
provides to UBS Capital information reasonably sufficient to permit UBS
Capital to evaluate the attractiveness of the Third Party Offer. The Company
will not accept the Third Party Offer if within five Business Days after
giving notice of the offer to UBS Capital, UBS Capital gives written notice
to the Company that UBS Capital desires the Company to seek a Sale on terms
more advantageous than those set forth in the Third Party Offer and UBS
Capital identifies a third party the Company should contact. If UBS Capital
gives such notice, the Company will use reasonable efforts to respond to the
reasonable requests of the party identified by UBS Capital with respect to
information concerning the Company's business. During the period (the
"Consulting Period") ending on the earlier of (a) 30 days after the date of
such notice by UBS Capital to the Company and (b) delivery by UBS Capital to
the Company of a consent to proceed with the proposed Sale, the Company will
not make any commitments to third parties with respect to a Sale, including
making any exclusive dealing commitment, provided that the Company shall be
permitted to make commitments relating to the confidentiality of information,
the performance of due diligence and the expenses of the parties. If the
Company does not receive prior to the expiration of the Consulting Period a
bona fide third party written offer to complete a Sale of the Company or the
Subsidiary to which the Third Party Offer pertains, which offer is not
subject to conditions which the Company deems to be unduly burdensome (an
"Alternative Offer"), the restrictions imposed on the Company with respect to
such Sale shall terminate.
9.3 EVALUATION OF ALTERNATIVE OFFER. If an Alternative Offer is
presented to the Company prior to the expiration of the Consulting Period,
the Board in good faith shall make a determination as to the relative
desirability of the Third Party Offer and the Alternative Offer, taking into
account such factors as the Board may in its reasonable discretion determine
to be pertinent. If the Board
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<PAGE>
determines that the Alternative Offer is more favorable to the Company than
the Third Party Offer, the Company may elect to undertake to complete the
Sale on the terms provided for in the Alternative Offer or may elect not to
undertake the Sale. If the Board does not determine that the Alternative
Offer is more favorable to the Company than the Third Party Offer, the
Company shall have no further obligations or be subject to any further
restrictions under this Section 9 with respect to such Sale. In that event,
the Company, without limitation, may elect to undertake to complete the Sale
on the terms of the Third Party Offer or on other terms, may elect to
undertake a Sale to the Offeror in respect of the Alternative Offer on terms
which may be other than those of the Alternative Offer, and may elect not to
undertake the Sale. The Stockholders agree that the performance by the
Company of its obligations under this Section 9 shall not breach any duty the
Company or any of its directors or officers or controlling stockholders may
have to the Stockholders, including any statutory or fiduciary duty or other
common law duty.
9.4 CONFIDENTIALITY AGREEMENT. The Company may condition any
undertaking of consultations with UBS Capital in connection with this Section
9 upon the execution and delivery by UBS Capital to the Company of a
confidentiality agreement reasonably satisfactory to the Company and its
counsel and upon the satisfaction of any governmental approvals, if any,
required in connection with the delivery of such documents or information or
with such consultations.
9.5 NO RIGHT TO REPRESENT OR COMMIT THE COMPANY. Notwithstanding
anything herein to the contrary, UBS Capital is not entitled to represent the
Company in any discussions with third parties and is not entitled to commit
or obligate the Company in any way.
9.6 TERMINATION OF RIGHT TO DELIVER ALTERNATIVE OFFER.
Notwithstanding anything herein to the contrary, the rights of UBS Capital
and the obligations of and restrictions imposed on the Company under this
Section 9 shall terminate upon the earlier of (i) the occurrence of the
Qualified IPO Date and (ii) such time as UBS Capital is no longer a
Significant Stockholder.
9.7 APPLICATION TO DRAG-ALONG SALE. In the event that any
Originating Partnership determines to consider undertaking a transaction
which would permit it to exercise its rights to cause a Drag-Along Sale
pursuant to Section 4, such transaction shall be considered a Sale and all
obligations imposed on the Company under this Section 9 shall apply to and be
fully complied with by such Originating Partnership.
Holdings Stockholders Agreement
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<PAGE>
10. RESTRICTIONS ON AMENDMENT OF GOVERNING DOCUMENTS. The Company
and the Stockholders agree not to amend the articles of incorporation or
bylaws of the Company, and agree not to permit the amendment of the articles
of incorporation, charter or bylaws of any Subsidiary, or, for a Subsidiary
for which there are no articles of incorporation, charter or bylaws, such
other instrument or instruments having a purpose comparable to the articles
of incorporation, charter or bylaws of a corporation, without the prior
written consent of UBS Capital with respect to such amendment, which consent
shall not be unreasonably withheld; PROVIDED, HOWEVER, that (i) no consent of
UBS shall be required to establish a new series of Preferred Stock (including
the filing of a certificate of designations with respect thereto) or to
increase the number of authorized shares of capital stock of the Company and
(ii) UBS may withhold its consent in its sole discretion with respect to any
amendment which would materially and adversely affect the rights, preferences
or privileges of the Series A Preferred Stock or which would adversely
discriminate against the Class C Common Stock as compared to the Class A
Common Stock, Class B Common Stock or Class D Common Stock. Notwithstanding
the foregoing, UBS Capital shall be deemed to have given its written consent
to any such amendment if the Company has received no written objection
thereto from UBS Capital within ten Business Days after written notice of the
proposed amendment is given by the Company to UBS Capital. Notwithstanding
anything herein to the contrary, the obligations and restrictions contained
in this Section 10 shall terminate upon the earlier of (i) the occurrence of
the Qualified IPO Date and (ii) such time as UBS Capital is no longer a
Significant Stockholder.
11. CORPORATE GOVERNANCE.
11.1 OBSERVER STATUS. At any time that UBS remains a Significant
Stockholder and does not have one or more nominees on the Board pursuant to
Section 11.2, UBS Capital will have the right to designate two individuals to
observe any meeting of the Board, any committees of the Board, the boards of
directors of the Subsidiaries of the Company ("Subsidiary Boards") and any
committees of any Subsidiary Boards, subject, however, to the right of the
Company to in good faith exclude such observers from any Company or
subsidiary board or committee meeting to the minimum extent necessary for the
purpose of protecting any attorney/client privilege. Not more than two
observers may attend any single meeting. Each such observer shall be
required to execute and deliver to the Company a confidentiality agreement
reasonably satisfactory to the Company. Observers shall not interfere with
the performance by members of such boards of any of their respective
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<PAGE>
statutory or common law duties. Subject to the right of the Company to in
good faith exclude observers from any meeting and limit the distribution of
information to the minimum extent necessary for the purpose of protecting any
attorney/client privilege in accordance with the first sentence of this
Section 11.1, Observers shall have the right to participate in all Board,
Subsidiary board and committee discussions and to receive copies of all
documents (including, without limitation, notices of meetings and requests
for written consents) at the same time as Board, Subsidiary board or
committee members receive such documents, but shall not have any voting or
approval rights.
11.2 RIGHT OF UBS CAPITAL TO NOMINATE DIRECTORS. From and after the
expiration of the Loan Period for so long as UBS Capital remains a
Significant Stockholder (the "Governance Period"), UBS Capital shall have the
right to nominate two members of the Board and one member of each Subsidiary
Board (each, a "UBS Nominee"). Each of the Stockholders agrees that such
Stockholder will vote all shares of Class A Common Stock now or hereafter
owned by such Stockholder at any meeting of stockholders of the Company and
in whatever other manner is necessary to ensure that during the Governance
Period, one UBS Nominee to the Board is duly elected. Each of the
Stockholders also agrees that such Stockholder will vote all shares of Class
B Common Stock now or hereafter owned by such Stockholder at any meeting of
shareholders of the Company and in whatever other manner is necessary to
ensure that during the Governance Period, the second UBS Nominee to the Board
is duly elected. The Company agrees that it will vote all shares of voting
Capital Stock of any Subsidiaries held by it and will cause to be voted all
shares of voting Capital Stock of the Subsidiaries at any meetings of
shareholders of Subsidiaries and in whatever other manner is necessary to
ensure that one UBS Nominee to each Subsidiary Board is duly elected during
the Governance Period. UBS Capital shall have the further right during the
Governance Period to have one UBS Nominee serve as a member of each Board
committee and each Subsidiary Board committee as may be established from time
to time.
11.3 VACANCIES. If any director ("Withdrawing Director")
selected in the manner set forth in Section 11.2 above is unable to serve or,
once having commenced to serve, is removed or withdrawn from the Board or a
Subsidiary Board, such Withdrawing Director's replacement (the "Substitute
Director") on the Board or the Subsidiary Board will be nominated by the
party who nominated the Withdrawing Director. Each of the Stockholders
agrees that such Stockholder will vote all shares of Class A Common Stock and
Class B Common Stock, as
Holdings Stockholders Agreement
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<PAGE>
applicable, now or hereafter held by it, and the Company agrees to vote all
voting Capital Stock now or hereafter owned or controlled by it, directly or
indirectly, for the election to the Board or such Subsidiary Board of such
Substitute Director.
11.4. RIGHTS NOT ASSIGNABLE WITHOUT CONSENT. Notwithstanding
any other provision of this Agreement, the right of UBS Capital to select the
UBS Nominees is not transferable, whether by sale of Shares or otherwise,
except with the consent of the Company and the Originating Partnerships which
consent shall not be unreasonably withheld.
11.5 TERMINATION OF GOVERNANCE RIGHTS. Notwithstanding anything
herein to the contrary, the corporate governance rights of UBS Capital and
the obligations of the Stockholders and the Company provided for in this
Section 11 shall terminate upon the occurrence of the Qualified IPO Date and,
if requested by the Company, the Stockholders and the Company agree to take
such action, as soon as practicable thereafter, as may be necessary to
achieve the resignation or removal of all UBS Nominees. Nothing in this
Section 11.6 shall be deemed to prohibit or otherwise limited the exercise by
UBS Capital of its voting rights with respect to any shares of Capital Stock
held by it.
12. TERMINATION. Except for the provisions of Sections 6 and
13, which shall survive the expiration or other termination of this
Agreement, this Agreement shall terminate on the earlier to occur of (a) the
written approval of (i) the Originating Partnerships and (ii) UBS Capital if
then a Stockholder and (b) June 27, 2005. A Stockholder shall cease to be
deemed a Stockholder hereunder, and shall no longer be a party to this
Agreement, at such time as such Stockholder ceases to own any Shares.
13. REGISTRATION RIGHTS. The Company agrees to afford to each
Eligible Holder the registration rights set forth in Exhibit B hereto.
14. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to principles of conflicts of law.
14.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including
the exhibits hereto) constitutes the entire agreement of the parties with
respect to the subject
Holdings Stockholders Agreement
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<PAGE>
matter hereof and may not be modified or amended except by a written
agreement signed by (a) the Company, (b) the Originating Partnerships and (c)
UBS Capital if then a Stockholder. Notwithstanding the foregoing, the
Company shall have the right, subject to Section 7, from and after the date
hereof, in the sole discretion of the Board, to issue shares of Common Stock
or Preferred Stock, or options or warrants to purchase or securities
convertible into such shares, to any Person (whether or not such Person is
already party to this Agreement) and to cause such securities and such
Persons (to the extent not already subject to this Agreement) to become
subject to this Agreement as Registrable Securities and as a Stockholder of
whatever class as the Company may determine, respectively.
14.3 LEGEND ON STOCK CERTIFICATES. Each certificate
representing Shares which are subject to this Agreement shall be endorsed
with a legend substantially to the following effect (in addition to any
legend required by applicable state securities or "blue sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR MSC HOLDINGS, INC. (THE ""COMPANY'') SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED. THE
SALE, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES IS ALSO SUBJECT TO
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCKHOLDERS
AGREEMENT, DATED AS OF JUNE 27, 1995, AS SUPPLEMENTED, MODIFIED AND AMENDED
FROM TIME TO TIME, AMONG THE COMPANY AND THE STOCKHOLDERS, OPTIONHOLDERS AND
WARRANTHOLDERS SIGNATORY THERETO, A COPY OF WHICH AGREEMENT IS AVAILABLE FOR
INSPECTION DURING REGULAR BUSINESS HOURS AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE COMPANY.
Any stock certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
the completion of a public distribution of securities of the Company
represented thereby) shall also bear such legend, unless the restrictions
contained in Sections 3, 4, 5 and 6 of this Agreement are no longer in effect
and, in the opinion of counsel for the Company, the Shares represented
thereby need no longer be subject to the restrictions contained in
Holdings Stockholders Agreement
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<PAGE>
Section 2 of this Agreement. The provisions of Sections 2, 3, 4, 5 and 6 of
this Agreement shall be binding upon, and shall inure to the benefit of, the
Stockholders and all subsequent holders of Shares who acquired the same
directly or indirectly from a Stockholder in a transaction or series of
transactions not involving any public offering. The Company agrees that it
will not transfer on its books any certificate representing Shares in
violation of the provisions of this Agreement.
14.4 SPECIFIC PERFORMANCE. Due to the fact that the securities
of the Company cannot be readily purchased or sold in the open market, and
for other reasons, the parties will be irreparably damaged in the event that
this Agreement is not specifically enforced. In the event of a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement
by any of the parties hereto, the other parties shall, in addition to all
other remedies, be entitled (without any bond or other security being
required) to a temporary and/or permanent injunction, without showing any
actual damage or that monetary damages would not provide an adequate remedy,
and/or a decree for specific performance, in accordance with the provisions
hereof.
14.5 WAIVER. No waiver of any breach or default hereunder shall
be considered valid unless in writing, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
Anything in this Agreement to the contrary notwithstanding, any waiver,
consent or other instrument under or pursuant to this Agreement signed by, or
binding upon, a Stockholder shall be valid and binding upon any and all
persons or entities (other than the Company) who may, at any time, have or
claim any rights under or pursuant to this Agreement in respect of the Shares
originally acquired by such Stockholder.
14.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, this Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Stockholders and
their respective heirs, personal representatives, successors and permitted
assigns.
14.7 SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render invalid
or unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
Holdings Stockholders Agreement
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14.8 HEADINGS. The section headings contained herein are for
the purposes of convenience of reference only and are not intended to define
or limit the contents of said sections.
14.9 FURTHER ASSURANCES. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
14.10 GENDER. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "she" or "hers" or "it" or "its"
whenever applicable. Words in the singular shall be read and construed as
though in the plural and words in the plural shall be construed as though in
the singular in all cases where they would so apply.
14.11 NOTICES. Any notice or other communication to be given
hereunder by any party to any other party shall be in writing and delivered
in person or by courier or by facsimile transmission or by mail, postage
prepaid, as follows:
(a) if to the Company, to MSC Holdings, Inc., Suite 1000,
1800 Century Park East, Los Angeles, CA 90067, Attention: Chief Financial
Officer, Telecopier No.: (310) 277-5591 (with a copy to Gibson, Dunn &
Crutcher, 333 South Grand Avenue, Los Angeles, California 90071, Attention:
Bruce D. Meyer, Esq., Telecopier No.: (213) 229-7520)), or at such other
place as the Company shall have designated by notice as herein provided to
each of the Stockholders; and
(b) if to a Stockholder, to the address of such Stockholder
as it appears on Exhibit A hereto, or at such other place as such
Stockholder shall have designated by notice as herein provided to the
Company.
14.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original for all
purposes, but all of which shall constitute but one and the same instrument.
14.13 DISPUTE RESOLUTION. To the fullest extent permitted by
law, any controversy, dispute or claim arising out of, in connection with, or
in relation to the interpretation, performance or breach of this Agreement or
any action taken by the Company or any Stockholder hereunder, or otherwise
arising out of the execution or performance hereof, including any claim based
on contract, tort or statute, shall be determined, at the request of any
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party, by arbitration conducted in the English language in New York, New York
or in Wilmington, Delaware, as determined by the American Arbitration
Association in accordance with and to the extent permitted by the Delaware
Arbitration Act and, to the extent not inconsistent therewith, the Rules for
Large Complex Cases of the American Arbitration Association as in effect on
the date that demand for such arbitration is filed with the American
Arbitration Association. The arbitrator shall be a member of the Large,
Complex Case Panel of the American Arbitration Association. The parties to
the arbitration shall attempt to select an arbitrator from such members. If
the parties to the arbitration do not agree on the selection of an arbitrator
within twenty (20) days after the date demand for the arbitration is filed,
an arbitrator having such experience shall be selected in accordance with
such Rules of the American Arbitration Association. The arbitrator shall set
forth his or her determination in writing (which shall be sent to each party
to such arbitration) and shall enumerate in reasonable detail the basis of
his or her determination. No party to the arbitration may seek, and the
arbitrator shall not award, punitive or exemplary damages. To the fullest
extent permitted by applicable law, any judgment or award rendered by the
arbitrator shall be final, conclusive and binding. Judgment may be entered on
any final, unappealable arbitration award by any state or federal court
having jurisdiction thereof. To the fullest extent permitted by applicable
law, any controversy concerning whether a dispute is an arbitrable dispute or
as to the interpretation or enforceability of this Section 14.13, shall be
determined by the arbitrator. The arbitration proceedings as well as the fact
such proceedings occur, shall be kept confidential by the Stockholders and
may only be disclosed to their personal representatives and advisors or as
required by law and insofar as is necessary to confirm, correct, vacate or
enforce the award. In the event of a breach of this provision, the
arbitrator is expressly authorized to assess damages and each of the
Stockholders consents to the expansion of the scope of arbitration for such
purpose. The pendency of any arbitration under this Section 14.13 shall not
relieve any Stockholder of its obligations under this Agreement. To the
fullest extent permitted by applicable law, if the Company or any Stockholder
shall resort to legal proceedings for injunctive or other similar relief
pending the outcome of any such arbitration proceeding or prior to the
initiation thereof, such Person shall not be deemed to have waived its rights
to cause such matter or any other matter to be referred to arbitration
pursuant to this Section 14.13. The parties intend that this agreement to
arbitrate be valid, enforceable and irrevocable. The designation of a situs
or a governing law for this Agreement or the arbitration shall not be deemed
an election to
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preclude application of the Federal Arbitration Act if it would be
applicable. The arbitrator shall have authority in his or her discretion to
grant injunctive relief, award specific performance and impose sanctions upon
any party to any such arbitration. In his or her award, the arbitrator shall
allocate, in his or her discretion, among the parties to the arbitration all
costs of arbitration, including the fees and expenses of the arbitrator and
reasonable attorneys' fees, costs and expert witness expenses of the parties.
14.14 AUTHORITY OF UBS CAPITAL. Each member of the UBS Group
(other than UBS Capital) hereby authorizes and empowers UBS Capital to take
all actions on behalf of and exercise all rights of such Person under this
Agreement, and UBS Capital shall act as the representative of the members of
the UBS Group for all purposes under this Agreement.
14.15 EFFECTIVE DATE. The effective date of this Agreement shall
be June 28, 1995, and each reference herein to the date of this Agreement
shall be deemed to be a reference to June 28, 1995.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
THE COMPANY:
MSC HOLDINGS, INC.
By: /s/ Frederick J. Elsea, III
--------------------------------
Name: Frederick J. Elsea, III
--------------------------
Title: Vice President
--------------------------
Holdings Stockholders Agreement
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<PAGE>
STOCKHOLDERS:
PETROWAX EQUITY PARTNERS I L.P.
By: CENTURY CITY 1800 PARTNERS,
L.P., as general partner
By: CENTURY CITY 1800 MANAGEMENT
PARTNERS L.P., as general
partner
By: GELPAR, INC., as general
partner
By: /s/ Frederick J. Elsea, III
--------------------------------
Name: Frederick J. Elsea, III
--------------------------
Title: Vice President
-------------------------
PETROWAX EQUITY PARTNERS II L.P.
By: CENTURY CITY 1800 PARTNERS,
L.P., as general partner
By: CENTURY CITY 1800 MANAGEMENT
PARTNERS L.P., as general
partner
By: GELPAR, INC., as general
partner
By: /s/ Frederick J. Elsea, III
--------------------------------
Name: Frederick J. Elsea, III
--------------------------
Title: Vice President
--------------------------
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<PAGE>
PETROWAX EQUITY PARTNERS III L.P.
By: CENTURY CITY 1800 PARTNERS,
L.P., as general partner
By: CENTURY CITY 1800 MANAGEMENT
PARTNERS L.P., as general
partner
By: GELPAR, INC., as general
partner
By: /s/ Frederick J. Elsea, III
--------------------------------
Name: Frederick J. Elsea, III
--------------------------
Title: Vice President
--------------------------
PETROWAX EQUITY PARTNERS IV L.P.
By: CENTURY CITY 1800 PARTNERS,
L.P., as general partner
By: CENTURY CITY 1800 MANAGEMENT
PARTNERS L.P., as general
partner
By: GELPAR, INC., as general
partner
By: /s/ Frederick J. Elsea, III
--------------------------------
Name: Frederick J. Elsea, III
--------------------------
Title: Vice President
--------------------------
Holdings Stockholders Agreement
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<PAGE>
UBS CAPITAL CORPORATION
By: /s/ Jeffrey J. Keenan
-------------------------------
Name: Jeffrey J. Keenan
--------------------------
Title: Managing Director
-------------------------
By: /s/ Justin Maccarone
-------------------------------
Name: Justin Maccarone
--------------------------
Title: Managing Director
-------------------------
Holdings Stockholders Agreement
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
STOCKHOLDERS
Number and Number of
Class of Shares and
Shares of Series of
Common Preferred
Name and Address Stock Stock
of Stockholder Owned Owned
-------------- ----- -----
<S> <C> <C>
Petrowax Equity Partners I L.P. 535,715 58,928
c/o Century City 1800 Partners L.P. Class A Series B
1800 Century Park East, Suite 1000
Los Angeles, CA 90067
Petrowax Equity Partners II L.P. 142,857 15,714
c/o Century City 1800 Partners L.P. Class B Series B
1800 Century Park East, Suite 1000
Los Angeles, CA 90067
Petrowax Equity Partners III L.P. 35,714 3,929
c/o Century City 1800 Partners L.P. Class C Series B
1800 Century Park East, Suite 1000
Los Angeles, CA 90067
Petrowax Equity Partners IV L.P. 35,713 3,929
c/o Century City 1800 Partners L.P. Class C Series B
1800 Century Park East, Suite 1000
Los Angeles, CA 90067
UBS Capital Corporation -- 142,500
299 Park Avenue Series A
New York, New York 10171
</TABLE>
Exhibit A to Stockholders Agreement
-----------------------------------
A-1
<PAGE>
Number of Shares of Class C
Name and Address Common Stock Subject to
of Warrant holder Warrants
----------------- --------
UBS Capital Corporation 409,090
299 Park Avenue
New York, New York 10171
Number of Shares of Class D
Name and Address Common Stock Subject to
of Optionholder Options
- --------------- -------
-- --
Exhibit A to Stockholders Agreement
-----------------------------------
A-2
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
1. "PIGGY-BACK" REGISTRATION.
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any
time proposes to effect a Qualified IPO or, following a Qualified IPO,
proposes to register any of its equity securities under the Act (other than
by a registration on Form S-4 or S-8 or any successor or similar forms),
whether or not for sale for its own account, in a manner which would permit
registration of Registrable Securities for sale to the public under the Act,
then the Company will each such time give prompt written notice (which shall
be at least 30 days prior to filing) to all Eligible Holders of Registrable
Securities of its intention to do so and of such Eligible Holders' rights
under this paragraph 1. Upon the written request of any such Eligible Holder
made within 20 days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such
Eligible Holder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities
in the registration statement which covers the securities which the Company
proposes to register or in a separate registration statement concurrently
filed and on terms substantially the same as those being offered to the
Company; PROVIDED THAT if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to each Eligible Holder of Registrable
Securities and, thereupon:
(i) in the case of a determination not to register, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay
the Registration Expenses in connection therewith), and
Exhibit B to Stockholders Agreement
-----------------------------------
B-1
<PAGE>
(ii) in the case of a delay in registering, shall be
permitted to delay registering any Registrable Securities for the same
period as the delay in registering such other securities.
(b) PRIORITY IN "PIGGY-BACK" REGISTRATIONS. If a registration
pursuant to this paragraph 1 involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its opinion, the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without adversely affecting the
offering, the Company will include in such registration to the extent of the
number which the Company is so advised can be sold in such offering without
adversely affecting the offering, securities determined as follows:
(i) first, the securities proposed by the Company to
be sold for its own account,
(ii) second, any Registrable Securities requested to be
included in such registration pro rata among the holders thereof
requesting such registration on the basis of the number of shares of
such securities requested to be included by such holders, and
(iii) third, any other securities of the Company proposed
to be included in such registration statement in accordance with the
priorities, if any, then existing among the holders of such securities.
2. DEMAND REGISTRATION RIGHT OF UBS.
(a) RIGHT TO REQUIRE REGISTRATION. At any time after the earlier of
(a) the date 7 years after the date of this Agreement and (b) the date 9
months following a Qualified IPO, UBS Capital shall have the right to require
the Company to file a registration statement under the Securities Act (and
the UBS Permitted Transferees shall have the right to participate in such a
registration) for a public offering of all or any portion of the shares of
Series A Preferred Stock held by the UBS Group when such right is exercised,
or all or any portion of the shares of Common Stock either held by the UBS
Group when such right is exercised or for which Warrants held by the UBS
Group when such right is exercised are exercisable and/or convertible, or all
or any portion of both such shares of Series A Preferred Stock and such
shares of Common Stock (such shares subject to the demand, the "Registration
Demand
Exhibit B to Stockholders Agreement
-----------------------------------
B-2
<PAGE>
Securities"), subject to the provisions of this paragraph 2. The demand
registration rights granted to the UBS Group in this paragraph 2 are subject
to the following limitations: (i) UBS Capital (on behalf of the UBS Group)
may make a demand under this paragraph 2 only two (2) times (each, a "Demand
Registration"); (ii) the Company shall not be obligated to cause any
registration statement filed under this paragraph 2 to be declared effective
less than six months after the effective date of the most recent registration
statement filed by the Company on its own behalf or for the benefit of the
Originating Partnership Group pursuant to Section 3; (iii) the managing
underwriter of any such offering shall be a recognized investment banking
firm selected by UBS Capital and approved by the Company (which approval
shall not be unreasonably withheld); (iv) notwithstanding the giving of
notice by UBS Capital of the exercise of its right to require registration
under this paragraph 2, the Company may elect to convert such registration
into a registration of shares for sale by the Company pursuant to paragraph 1
hereof by providing notice to the Stockholders in accordance with paragraph
1, and in such event the provisions of paragraph 1 shall apply to such
registration rather than the provisions of this paragraph 2 and such
registration shall not count as a Demand Registration; (v) the Company shall
have the right exercisable only one (1) time per each request for a demand
registration to postpone for up to six months any registration requested
pursuant to this paragraph 2 if, in the opinion of the Board, such
registration would interfere with any material transaction then being pursued
by the Company or any strategic plan or material business plan adopted by the
Company in advance of the registration demand; (vi) notwithstanding any other
provision hereof, UBS Capital shall have the right to transfer one or both of
its Demand Registrations in connection with a transfer of at least 50% of the
Shares owned by it at any time, each such transfer to be subject to the
approval of the Company, such approval not to be unreasonably withheld; and
(vii) any demand under this paragraph 2 shall be for a firm commitment
underwritten offering, with respect to which the Company shall be required to
maintain an effective registration statement for a maximum of 30 days.
(b) NOTICE OF EXERCISE OF DEMAND REGISTRATION RIGHT; PARTICIPATION
RIGHTS. UBS Capital shall provide written notice to the Company of the
registration demand (which notice shall state the number of shares of Common
Stock and Series A Preferred Stock the UBS Group desires the Company to
register and the intended method of disposition of such securities), and the
Company promptly shall provide written notice of such demand to all of the
other Stockholders and all of the Stockholders then will have the
Exhibit B to Stockholders Agreement
-----------------------------------
B-3
<PAGE>
opportunity to include in the offering shares of Common Stock or
Preferred Stock of any series then owned by (or issuable, upon exercise
and/or conversion of other securities, to) such Stockholders, but in each
case only to the extent permitted by paragraph 2.3 below. In addition,
subject to paragraph 2.3 below, the Company may elect to include in any
registration statement and offering pursuant to this paragraph 2 newly issued
shares of Common Stock and Preferred Stock. Solely for purposes of
paragraphs 3 through 9 below, any securities registered pursuant to this
paragraph 2 shall be deemed to be Registrable Securities.
(c) PRIORITY. Notwithstanding the foregoing, if the registration
pursuant to this paragraph 2 involves an underwritten offering and the
managing underwriter advises the Company or UBS Capital in writing that the
number of shares of Common Stock or Preferred Stock desired to be offered by
the Company or Stockholders other than the UBS Group together with the
Registration Demand Securities of the UBS Group exceeds the maximum number of
such shares which the managing underwriter considers, in good faith, to be
appropriate based on market conditions and other relevant factors (including,
without limitation, pricing) (the "Maximum Number"), then the securities
proposed to be included by Stockholders other than the UBS Group or the
Originating Partnership Group (the "Other Sellers") shall be excluded from
such registration before any such securities of the UBS Group, the
Originating Partnership Group or the Company shall be excluded. If, and to
the extent that, after the exclusion of the securities proposed to be
included by the Other Sellers, the number of securities proposed to be
included by the UBS Group, the Originating Partnership Group and the Company
exceeds the Maximum Number, such securities to be included on behalf of the
Company shall be excluded. If, and to the extent that, after the exclusion
of the securities proposed to be included by the Other Sellers and the
Company, the number of such securities proposed to be included by the UBS
Group and the Originating Partnership Group exceeds the Maximum Number, the
UBS Group and the Originating Partnership Group shall be entitled to sell a
number of shares of such securities equal to the Maximum Number and such
Maximum Number shall be allocated among the UBS Group and the Originating
Partnership Group, in the case of shares of Common Stock, according to the
UBS Group's and the Originating Partnership Group's Pro Rata share of the
Common Stock held by the UBS Group and the Originating Partnership Group,
and, in the case of shares of Preferred Stock, based on the relative
aggregate redemption value of the shares of Preferred Stock held by the UBS
Group and the Originating Partnership Group. Each of the UBS Group, the
Originating Partnership Group, the Other Sellers and the Company (in the
Exhibit B to Stockholders Agreement
-----------------------------------
B-4
<PAGE>
event that any securities are to be offered by the Company) may withdraw from
any demand registration pursuant to this paragraph 2 by giving written notice
to the Company prior to the filing date of such registration statement and,
in the event of a withdrawal by the UBS Group, such withdrawn Demand
Registration shall not be deemed to be a Demand Registration counting against
the maximum of two Demand Registrations set forth in paragraph 2(a) if (i)
the UBS Group pays or promptly reimburses the Company for all Registration
Expenses incurred by the Company in connection with such withdrawn Demand
Registration or (ii) a registration statement with respect to a Qualified IPO
is filed by the Company with the Commission within 90 days after such
withdrawal.
(d) COOPERATION. If so requested by the managing underwriter of any
offering of Common Stock and/or Preferred Stock pursuant to paragraph 1 or
this paragraph 2, each of the Stockholders and the Company shall agree not to
sell any such securities (other than shares to be sold in such offering) for
a period of seven days prior to and up to 180 days after the effective date
of the registration statement filed with respect to such offering, except for
sales by the Company pursuant to registrations on Form S-4 or S-8 or any
successor or similar forms thereto.
3. DEMAND REGISTRATION RIGHTS OF ORIGINATING PARTNERSHIPS.
(a) RIGHT TO REQUIRE REGISTRATION. At any time after the earlier of
(a) the date 7 years after the date of this Agreement and (b) the date 9
months following a Qualified IPO, either of the Originating Partnerships,
provided that such Originating Partnership is then a Stockholder, shall have
the right to require the Company to file a registration statement under the
Securities Act (and the other Originating Partnership and their respective
Permitted Transferees shall have the right to participate in such
registration) for a public offering of all or any portion of the shares of
Series B Preferred Stock held by the Originating Partnership Group when such
right is exercised, or all or any portion of the shares of Common Stock held
by the Originating Partnership Group when such right is exercised, or all or
any portion of both such shares of Series B Preferred Stock and such shares
of Common Stock (such shares subject to the demand, the "Registration Demand
Securities"), subject to the provisions of this paragraph 3. The demand
registration rights granted to the Originating Partnership Group in this
paragraph 3 are subject to the following limitations: (i) the Originating
Partnerships (on behalf of the Originating Partnership Group) may make a
demand under this paragraph 3 only two (2)
Exhibit B to Stockholders Agreement
-----------------------------------
B-5
<PAGE>
times (each, a "Demand Registration"); (ii) the Company shall not be
obligated to cause any registration statement filed under this paragraph 3 to
be declared effective less than six months after the effective date of the
most recent registration statement filed by the Company on its own behalf or
for the benefit of the UBS Group pursuant to Section 2; (iii) the managing
underwriter of any such offering shall be a recognized investment banking
firm selected by the Originating Partnerships and approved by the Company
(which approval shall not be unreasonably withheld); (iv) notwithstanding the
giving of notice by either of the Originating Partnerships of the exercise of
its right to require registration under this paragraph 3, the Company may
elect to convert such registration into a registration of shares for sale by
the Company pursuant to paragraph 1 hereof by providing notice to the
Stockholders in accordance with paragraph 1, and in such event the provisions
of paragraph 1 shall apply to such registration rather than the provisions of
this paragraph 3 and such registration shall not count as a Demand
Registration; (v) the Company shall have the right exercisable only one (1)
time per each request for a demand registration to postpone for up to six
months any registration requested pursuant to this paragraph 3 if, in the
opinion of the Board, such registration would interfere with any material
transaction then being pursued by the Company or any strategic plan or
material business plan adopted by the Company in advance of the registration
demand; (vi) notwithstanding any other provision hereof, the Originating
Partnerships shall have the right to transfer one or both of their Demand
Registrations in connection with a transfer of at least 50% of the Shares
owned by them at any time, each such transfer to be subject to the approval
of the Company, such approval not to be unreasonably withheld; and (vii) any
demand under this paragraph 2 shall be for a firm commitment underwritten
offering, with respect to which the Company shall be required to maintain an
effective registration statement for a maximum of 30 days.
(b) NOTICE OF EXERCISE OF DEMAND REGISTRATION RIGHT; PARTICIPATION
RIGHTS. The Originating Partnership making a demand for registration shall
provide written notice to the Company and the other members of the
Originating Partnership Group of the registration demand (which notice shall
state the number of shares of Common Stock and Series B Preferred Stock such
Originating Partnership desires the Company to register and the intended
method of disposition of such Shares). For a period of 10 Business Days
following the delivery of such notice to the other members of the Originating
Partnership Group, the other members of the Originating Partnership Group may
elect to participate in the demand registration by delivery of
Exhibit B to Stockholders Agreement
-----------------------------------
B-6
<PAGE>
written notice thereof to the Company and the Originating Partnership making
the demand for registration (which notice shall state the number of shares of
Common Stock and Series B Preferred Stock that such Person desires the
Company to register and the intended method of disposition of such Shares).
In addition, the Company promptly shall provide written notice of such demand
to all of the other Stockholders and all of the Stockholders then will have
the opportunity to include in the offering shares of Common Stock or
Preferred Stock of any series then owned by (or issuable, upon exercise
and/or conversion of other securities, to) such Stockholders, but in each
case only to the extent permitted by paragraph 2.3 below. In addition,
subject to paragraph 2.3 below, the Company may elect to include in any
registration statement and offering pursuant to this paragraph 2 newly issued
shares of Common Stock and Preferred Stock. Solely for purposes of
paragraphs 3 through 9 below, any securities registered pursuant to this
paragraph 2 shall be deemed to be Registrable Securities.
(c) PRIORITY. Notwithstanding the foregoing, if the registration
pursuant to this paragraph 2 involves an underwritten offering and the
managing underwriter advises the Company or the Originating Partnerships in
writing that the number of shares of Common Stock or Preferred Stock desired
to be offered by the Company or Stockholders other than the Originating
Partnership Group together with the Registration Demand Shares of the
Originating Partnership Group exceeds the maximum number of such shares which
the managing underwriter considers, in good faith, to be appropriate based on
market conditions and other relevant factors (including, without limitation,
pricing) (the "Maximum Number"), then the securities proposed to be
included by Stockholders other than the Originating Partnership Group or the
UBS Group (the "Other Sellers") shall be excluded from such registration
before any such Shares of the Originating Partnership Group, the UBS Group or
the Company shall be excluded. If, and to the extent that, after the
exclusion of the securities proposed to be included by the Other Sellers, the
number of securities proposed to be included by the Originating Partnership
Group, the UBS Group and the Company exceeds the Maximum Number, such
securities to be included on behalf of the Company shall be excluded. If,
and to the extent that, after the exclusion of the securities proposed to be
included by the Other Sellers and the Company, the number of such securities
proposed to be included by the Originating Partnership Group and the UBS
Group exceeds the Maximum Number, the Originating Partnership Group and the
UBS Group shall be entitled to sell a number of shares of such securities
equal to the Maximum Number and such Maximum Number shall be allocated among
the Originating Partnership
Exhibit B to Stockholders Agreement
-----------------------------------
B-7
<PAGE>
Group and the UBS Group, in the case of shares of Common Stock, according to
the Originating Partnership Group's and the UBS Group's Pro Rata share of the
Common Stock held by the Originating Partnership Group and the UBS Group,
and, in the case of shares of Preferred Stock, based on the relative
aggregate redemption value of the shares of Preferred Stock held by each of
the Originating Partnership Group and the UBS Group. Each of the Originating
Partnership Group, the UBS Group, the Other Sellers and the Company (in the
event that any securities are to be offered by the Company) may withdraw from
any demand registration pursuant to this paragraph 3 by giving written notice
to the Company prior to the filing date of such registration statement and,
in the event of a withdrawal by the Originating Partnership Group, such
withdrawn Demand Registration shall not be deemed to be a Demand Registration
counting against the maximum of two Demand Registrations set forth in
paragraph 3(a) if (i) the Originating Partnership Group pays or promptly
reimburses the Company for all Registration Expenses incurred by the Company
in connection with such withdrawn Demand Registration or (ii) a registration
statement with respect to a Qualified IPO is filed by the Company with the
Commission within 90 days after such withdrawal.
(d) COOPERATION. If so requested by the managing underwriter of any
offering of Common Stock and/or Preferred Stock pursuant to paragraph 1 or
this paragraph 3, each of the Stockholders and the Company shall agree not to
sell any such securities (other than shares to be sold in such offering) for
a period of seven days prior to and up to 180 days after the effective date
of the registration statement filed with respect to such offering, except for
sales by the Company pursuant to registrations on Form S-4 or S-8 or any
successor or similar forms thereto.
4. REGISTRATION PROCEDURES. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable
Securities under the Act as provided in paragraphs 1, 2 and 3, the Company
will as expeditiously as possible (and, in any event, within 90 days),
subject to the terms and conditions of paragraphs 1, 2 or 3, as applicable:
(a) prepare and file with the Commission the requisite registration
statement to effect such registration and use its best efforts to cause such
registration statement to become effective; PROVIDED, HOWEVER, that the
Company may discontinue any registration of its securities which are not
Registrable Securities at any time prior to the effective date of the
registration statement relating thereto;
Exhibit B to Stockholders Agreement
-----------------------------------
B-8
<PAGE>
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Act with respect to the disposition
of all securities covered by such registration statement until the earlier of
such time as all of such securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or the expiration of 90 days after such
registration statement becomes effective; PROVIDED that if less than all the
Registrable Securities are withdrawn from registration after the expiration
of such period, the shares so withdrawn shall be allocated PRO RATA among the
holders thereof on the basis of the respective numbers of Registrable
Securities held by them included in such registration, PROVIDED, FURTHER,
that in connection with any demand registration pursuant to Section 2 or 3,
if the Company fails to keep such registration statement effective for such
period, such registration shall be deemed not to constitute a Demand
Registration;
(c) furnish to each seller of Registrable Securities covered by such
registration statement such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Act, in conformity with the requirements of the Act, and such other
documents, as such seller may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such securities or blue sky laws of such jurisdictions as each seller thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and take
any other action which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for any
such purpose be required to:
(i) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (d) be obligated to be so qualified,
Exhibit B to Stockholders Agreement
-----------------------------------
B-9
<PAGE>
(ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller
or sellers thereof to consummate the disposition of such Registrable
Securities;
(f) furnish to each seller of Registrable Securities covered by such
registration statement a signed counterpart, addressed to such seller (and
the underwriters, if any), of:
(i) an opinion of counsel for the Company, dated the effective date
of such registration statement (or, if such registration includes an
underwritten public offering, an opinion of counsel for the Company dated
the date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a "comfort" letter dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who
have certified the Company's financial statements included in such
registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statement, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters as such seller or such
holder (or the underwriters, if any) may reasonably request;
(g) immediately notify each holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event or
Exhibit B to Stockholders Agreement
-----------------------------------
B-10
<PAGE>
the existence of any condition as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, or if in the
opinion of counsel for the Company it is necessary to supplement or amend
such prospectus to comply with law and, at the request of any such holder
promptly prepare and furnish to such holder a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under
which they were made or such prospectus, as supplemented or amended, shall
comply with law;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act and the rules and regulations of the Commission
thereunder, and not file any amendment or supplement to such registration
statement or prospectus to which any such seller of Registrable Securities
covered by such registration statement shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Act or of the rules or regulations
thereunder, having been furnished with a copy thereof at least five business
days prior to the filing thereof;
(i) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement;
(j) use its best efforts to list all Registrable Securities covered by
such registration statement on any securities exchange on which any of the
Registrable Securities are then listed; and
(k) pay all Registration Expenses relating to any registration pursuant
to paragraphs 1, 2 and 3 hereof.
Exhibit B to Stockholders Agreement
-----------------------------------
B-11
<PAGE>
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company with such information
and undertakings as it may reasonably request regarding such seller and the
distribution of such securities as the Company may from time to time
reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities as follows:
(A) that upon receipt of any notice from the Company of the happening
of any event of the kind described in subdivision (g) of this paragraph 4,
such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
paragraph 4 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies,
then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice, and
(B) that it will immediately notify the Company, at any time when a
prospectus relating to the registration of such Registrable Securities is
required to be delivered under the Act, of the happening of any event as a
result of which information previously furnished by such holder to the
Company in writing for inclusion in such prospectus contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
In the event the Company or any such holder shall give any such notice, the
period referred to in subdivision (b) of this paragraph 2 shall be extended
by a number of days equal to the number of days during the period from and
including the giving of notice pursuant to subdivision (g) of this paragraph
4 to and including the date when each seller of any Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
paragraph 4.
Exhibit B to Stockholders Agreement
-----------------------------------
B-12
<PAGE>
5. UNDERWRITTEN OFFERINGS.
(a) UNDERWRITING AGREEMENT. If the Company at any time proposes to
register any of its securities under the Act as contemplated by paragraphs 1,
2 or 3 and such securities are to be distributed by or through one or more
underwriters, the Company will, subject to the provisions of subdivision (b)
of paragraph 1, use its best efforts to arrange for such underwriters to
include the Registrable Securities to be offered and sold by such holder
among the securities to be distributed by such underwriters, and each holder
of Registrable Securities agrees, by acquisition of such Registrable
Securities, that all Registrable Securities of such holder to be included in
such registration shall be distributed and sold through such underwriters.
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made to
and for the benefit of such holders of Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters shall
also be made to and for the benefit of such holders of Registrable
Securities. No holder of Registrable Securities shall be required to make
any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such holder and such holder's intended method of distribution and any other
representation required by law.
(b) SELECTION OF UNDERWRITERS.
(i) Subject to subsection (ii) of this Section 5(b), the selection of
the underwriter or underwriters for the public offering to be made pursuant
to a registration statement filed under paragraphs 1 above shall be made by
the Company, in its sole discretion, from amongst underwriting firms of
national reputation.
(ii) With respect to any proposed initial public offering ("IPO") by
the Company, promptly after the determination by the Company to consider
undertaking such an IPO, the Company shall notify UBS Capital in writing of
such determination. UBS Capital shall have the right to propose two (2)
underwriting firms of national reputation (the "Proposed Underwriters") for
such IPO by written notice to the Company delivered within 15 days of
receipt of the Company's notice. The Company shall be obligated to
Exhibit B to Stockholders Agreement
-----------------------------------
B-13
<PAGE>
interview the Proposed Underwriters in good faith for purposes of
considering engaging either or both of the Proposed Underwriters for such
IPO. If the Company elects not to enter into a binding engagement letter
with one or both of the Proposed Underwriters, it may proceed with such
IPO free of the obligations of this Section 5(b)(ii), PROVIDED, that the
closing under the underwriting agreement with respect to such IPO must
occur within one (1) year from the date of the Company's original notice
to UBS Capital, otherwise such IPO shall again be subject to this Section
5(b)(ii).
6. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Act, the
Company will give the holders of Registrable Securities registered under such
registration statement, their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and will
give each of them such access to its books and records and such opportunities
to discuss the business, finances and accounts of the Company and its
subsidiaries with its officers, directors and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the Act.
7. CERTAIN RIGHTS OF HOLDERS. The Company will not file any
registration statement under the Act which refers to any holder of
Registrable Securities by name or otherwise as the holder of any securities
of the Company, unless it shall first have given such holder the right to
require:
(a) the insertion therein of language, in form and substance
satisfactory to such holder, to the effect that, in the opinion of such
holder, the holding by such holder of such securities does not make such
holder a "controlling person" of the Company within the meaning of the Act
and is not to be construed as a recommendation by such holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or
(b) in the event that such reference to such holder by name or otherwise
is not required by the Act or
Exhibit B to Stockholders Agreement
-----------------------------------
B-14
<PAGE>
any rules and regulations promulgated thereunder, the deletion of the
reference to such holder.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any registration of
any securities of the Company under the Act, the Company will, and hereby
does, indemnify and hold harmless the seller of any Registrable Securities
covered by any registration statement filed pursuant to paragraph 1, 2 or 3,
its directors, officers, partners, employees, agents and investment advisors,
each other Person who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls such seller or
any such underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, from and against any losses, claims, damages
or liabilities, joint or several (or actions or proceedings, whether
commenced or threatened, in respect thereof) (collectively, "Claims"), to
which such seller or any such director or officer or employee or agent or
investment advisor or underwriter or controlling person may become subject
under either Section 15 of the Act or Section 20 of the Exchange Act or
otherwise, insofar as such Claims arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto (if used during the
period the Company is required to keep the registration statement current)
(collectively, "Registration Documents"), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which made, or any violation by the Company of the Act or
any state securities law, or any rule or regulation promulgated under the Act
or any state securities law, or any other law applicable to the Company
relating to any such registration or qualification, and the Company will
reimburse such seller and each such director, officer, employee, agent,
investment advisor, underwriter and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; PROVIDED that the Company shall not be liable in
any such case to the extent that any such Claim or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any such Registration Document in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such seller stating that it is for use in the
preparation
Exhibit B to Stockholders Agreement
-----------------------------------
B-15
<PAGE>
thereof; PROVIDED FURTHER that the Company shall not be liable to any Person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act
in any such case to the extent that any such Claim, or expense arises out of
such Person's failure to send or give a copy of the final prospectus to the
Person claiming an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or any such director, officer, employee, agent, investment advisor,
partner, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration
statement filed pursuant to paragraphs 1, 2 or 3, that the Company shall have
received an undertaking satisfactory to it from the prospective seller of
such securities, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in subdivision (a) of this paragraph 8) the
Company, each director of the Company, each officer of the Company and each
other person, if any, who controls the Company within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, with respect to any
statement or alleged statement or omission or alleged omission from such
Registration Document, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such seller specifically stating that it is for use in the preparation of
such Registration Document. Notwithstanding the foregoing, in no event shall
any selling stockholder or any director, officer, employee, agent, investment
advisor or controlling person thereof be liable to indemnify the Company
pursuant to this subdivision (b) of this paragraph 8 hereof in an amount in
excess of the amount of the net proceeds of the Registrable Securities sold
by him, her or it in any such offering. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company of any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the
Exhibit B to Stockholders Agreement
-----------------------------------
B-16
<PAGE>
commencement of any action or proceeding involving a Claim referred to
in the preceding subdivisions of this paragraph 8, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
PROVIDED that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this paragraph 8, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement of any pending or threatened proceeding in respect of which an
indemnified party is or could have been a party and indemnity could have been
sought under subdivision (a) of this paragraph 8 without the consent of the
indemnified party which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding subdivisions of this paragraph 8 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any
governmental authority, other than the Act. If the indemnification provided
for in subdivision (a), (b) or (c) of this paragraph 8 is unavailable to an
indemnified party or insufficient in respect of any losses, claims, damages
or liabilities referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying
Exhibit B to Stockholders Agreement
-----------------------------------
B-17
<PAGE>
party or parties on the one hand and the indemnified party or parties
on the other hand from the offering of the securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations;
PROVIDED, HOWEVER, that in no event shall any contribution by the selling
stockholder or any director, officer, employee, agent, investment advisor or
controlling person thereof pursuant to this subdivision (d) of this paragraph
8 exceed the amount of the net proceeds of the Registrable Securities sold by
him, her or it in any such offering.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
paragraph 8 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
9. ADJUSTMENT AFFECTING REGISTRABLE SECURITIES. The Company will not
effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Registrable Securities
to effect the registration of such securities in the manner contemplated by
these registration rights provisions.
10. COVENANTS RELATING TO RULE 144. At all times after the effective
date of the registration statement under the Act of the initial underwritten
public offering of Common Stock, and until such time as all of the
Registrable Securities are deregistered, the Company will file reports in
compliance with the Exchange Act and will, at its expense, forthwith upon the
request of any holder of Restricted Securities (as defined in Rule 144 (or
any successor provision) under the Act), deliver to such holder a
certificate, signed by the Company's principal financial officer, stating:
(a) the Company's name, address and telephone number (including area
code),
(b) the Company's Internal Revenue Service identification number,
(c) the Company's Commission file number,
Exhibit B to Stockholders Agreement
-----------------------------------
B-18
<PAGE>
(d) the number of shares of Common Stock of the Company
outstanding as shown by the most recent report or statement published by
the Company, and
(e) whether the Company has filed the reports required to be
filed under the Exchange Act for a period of at least 90 days prior to
the date of such certificate and in addition has filed the most recent
annual report required to be filed thereunder.
Exhibit B to Stockholders Agreement
-----------------------------------
B-19
<PAGE>
EXHIBIT C
FORM OF AGREEMENT OF BENEFICIAL OWNER
[FOR BENEFICIAL OWNER OF P-1, P-2, P-3 OR P-4 LIMITED
PARTNERSHIPS]
This Agreement of Beneficial Owner is made and entered into this __ day
of _______, 199_, by ____________ (the "Beneficial Owner") to and for the
benefit of MSC Holdings, Inc. (the "Company").
WHEREAS, the Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") of Petrowax Equity Partners __ L.P. (the
"Partnership") imposes certain restrictions on the transfer of beneficial
interests in limited partners of the Partnership, which restrictions inure to
the benefit of the Company and all holders of direct or indirect interests in
the Company; and
WHEREAS, the undersigned Beneficial Owner is a limited partner of or
holds a beneficial interest in a limited partner of the Partnership, which is
a shareholder of the Company, and the Beneficial Owner is, thereby, a holder
of an indirect interest in the Company,
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Beneficial Owner agrees as follows:
1. Without the express written consent of the Company and UBS Capital
Corporation (for so long as UBS Capital Corporation remains a Significant
Stockholder), the Beneficial Owner will not transfer all or any portion of
its Beneficial Interest prior to the Three-Year Date.
2. During the period commencing on the Three-Year Date and ending on
the NOL Restriction Termination Date, the Beneficial Owner will not transfer
more than its Transfer Allotment of its Beneficial Interest without the
express written consent of the Company and UBS Capital Corporation (for so
long as UBS Capital Corporation remains a Significant Stockholder).
Notwithstanding the foregoing, transfers of Beneficial Interests by the
Beneficial Owner, if the Beneficial Owner is an individual, to family members
(as described in Section 382(l)(3)(A)(i) of the Code), or transfers after the
Three-Year Date of the type described in Section 382(l)(3)(B) of the Code,
shall be permitted, provided that (i) the Beneficial Owner provides to the
Company an opinion of counsel, in form and substance reasonably satisfactory
to the Company and (for so long as UBS Capital Corporation remains a
Significant Stockholder)
Exhibit C to Stockholders Agreement
-----------------------------------
C-1
<PAGE>
UBS Capital Corporation, that such transfer will be governed by Section
382(l)(3)(A)(i) or Section 382(l)(3)(B) of the Code, as the case may be, and
(ii) such transfer otherwise complies with the provisions of the Stockholders
Agreement and the Partnership Agreement.
4. The Beneficial Owner acknowledges and agrees that any transfer of
all or any portion of its Beneficial Interest in violation of this Agreement
of Beneficial Owner shall be of no force or effect.
5. The Beneficial Owner acknowledges and agrees that the General
Partner, at any time or from time to time, may reduce or otherwise adjust the
Beneficial Owner's Transfer Allotment in accordance with the Partnership
Agreement.
6. Capitalized terms not defined in this Agreement of Beneficial Owner
shall have the meanings ascribed to them in the Partnership Agreement.
IN WITNESS WHEREOF, the Beneficial Owner has executed this Agreement of
Beneficial Owner on the year and date first set forth above.
____________________________
[Beneficial Owner]
Exhibit C to Stockholders Agreement
-----------------------------------
C-2
<PAGE>
[FORM OF AGREEMENT OF BENEFICIAL OWNER FOR BENEFICIAL OWNERS
OF OTHER STOCKHOLDERS]
This Agreement of Beneficial Owner is made and entered into this __ day
of _______, 199_, by ____________ (the "Beneficial Owner") to and for the
benefit of [Stockholder] (the "Stockholder") and MSC Holdings, Inc. (the
"Company").
WHEREAS, the Stockholders Agreement Among MSC Holdings, Inc. and Certain
of its Stockholders, Optionholders and Warrantholders (the "Stockholders
Agreement") imposes certain restrictions on the transfer of direct or
indirect beneficial interests in stockholders, optionholders and
warrantholders of the Company, which restrictions inure to the benefit of the
Company and all holders of direct or indirect interests in the Company; and
WHEREAS, the undersigned Beneficial Owner holds a beneficial interest in
a stockholder, optionholder or warrantholder of the Company and the
Beneficial Owner is, thereby, a holder of an indirect interest in the Company,
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Beneficial Owner agrees as follows:
1. Without the express written consent of the Company and UBS Capital
Corporation (for so long as UBS Capital Corporation remains a Significant
Stockholder), the Beneficial Owner will not transfer all or any portion of
its Beneficial Interest prior to the Three-Year Date.
2. During the period commencing on the Three-Year Date and ending on
the Restriction Termination Date, the Beneficial Owner will not transfer more
than its Transfer Allotment of its Beneficial Interest without the express
written consent of the Company and UBS Capital Corporation (for so long as
UBS Capital Corporation remains a Significant Stockholder). Notwithstanding
the foregoing, transfers of Beneficial Interests by the Beneficial Owner, if
the Beneficial Owner is an individual, to family members (as described in
Section 382(l)(3)(A)(i) of the Code), or transfers after the Three-Year Date
of the type described in Section 382(l)(3)(B) of the Code, shall be
permitted, provided that (i) the Beneficial Owner provides to the Company an
opinion of counsel, in form and substance reasonably satisfactory to the
Company and (for so long as UBS Capital Corporation remains a Significant
Stockholder) UBS Capital Corporation, that such transfer will be governed by
Section 382(l)(3)(A)(i) or Section 382(l)(3)(B) of the Code, as the case may
be, and (ii) such transfer otherwise complies with any applicable provisions
of the Stockholders Agreement.
Exhibit C to Stockholders Agreement
-----------------------------------
C-3
<PAGE>
4. The Beneficial Owner acknowledges and agrees that any transfer of
all or any portion of its Beneficial Interest in violation of this Agreement
of Beneficial Owner shall be of no force or effect.
5. The Beneficial Owner acknowledges and agrees that the Stockholder,
at any time or from time to time, may reduce or otherwise adjust the
Beneficial Owner's Transfer Allotment in accordance with the Stockholders
Agreement.
6. Capitalized terms not defined in this Agreement of Beneficial Owner
shall have the meanings ascribed to them in the Stockholders Agreement. IN
WITNESS WHEREOF, the Beneficial Owner has executed this Agreement of
Beneficial Owner on the year and date first set forth above.
____________________________
[Beneficial Owner]
Exhibit C to Stockholders Agreement
-----------------------------------
C-4
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
among
ASTOR CORPORATION,
AAC ACQUISITION CORP.
and
ADCO TECHNOLOGIES INC.
Section Page
- ------- ----
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Representations and Warranties of the Company . . . . . . . . . . . 11
4. Representations and Warranties of the Buyer Parties . . . . . . . . 20
5. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . 21
6. Covenants of the Buyer Parties . . . . . . . . . . . . . . . . . . 26
7. Conditions Precedent to the Buyer Parties' Obligations . . . . . . 27
8. Conditions Precedent to the Company's Obligations . . . . . . . . . 28
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 31
11. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBITS
A Certificate of Merger
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of the 12th day of July 1996
by and among ASTOR CORPORATION, a Delaware corporation (the "Buyer"), AAC
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of the
Buyer (the "Acquisition Company" and, together with the Buyer, the "Buyer
Parties"), and ADCO TECHNOLOGIES INC., a Delaware corporation (the "Company").
BACKGROUND
The Boards of Directors of the Company, the Buyer and the Acquisition
Company, have approved a merger (the "Merger") of the Acquisition Company with
and into the Company in accordance with the Delaware General Corporation Law
(the "DGCL"), on the terms and conditions set forth herein.
WITNESSETH:
In consideration of the mutual promises, representations and warranties,
covenants, payments and actions herein provided, the parties hereto, each
intending to be legally bound hereby, do agree as follows:
1. DEFINITIONS.
For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally applicable to
both singular and plural forms of the terms defined).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" is defined in Section 5.4.
"Affiliates" means, with respect to a particular party, any Persons
controlling, controlled by or under common control with that party.
"Agreement" means this Agreement and Plan of Merger and the exhibits and
schedules hereto.
"Assets" means all of the assets, properties and rights of every kind and
description, real and personal, tangible and intangible, that are owned by any
Company Parties, taken as a whole.
"Benefit Plans" means all employee benefit plans of any Company Party
within the meaning of Section 3(3) of ERISA and any related or separate
Contracts, plans, trusts, programs, policies, arrangements, practices, customs
and understandings that provide benefits of economic
<PAGE>
value to any present or former employee of any Company Party, or current or
former beneficiary, dependent or assignee of any such employee or former
employee.
"Bridge Financing" is defined in Section 4.4.
"Business" means the entire business and operations of the Company Parties,
taken as a whole.
"Buyer" is defined above in the preamble.
"Buyer Financing" means the Bridge Financing and the Buyer Parties' Rule
144A financing for the Transactions.
"Buyer Parties" is defined above in the preamble.
"Certificate of Merger" is defined in Section 2.2.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 2.9.
"Closing Date" is defined in Section 2.9.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the issued and outstanding shares of Common Stock.
"Common Stock" means the Common Stock, par value $0.01 per share, of the
Company.
"Company" is defined above in the preamble.
"Company Balance Sheet" is defined in Section 3.6.
"Company Balance Sheet Date" is defined in Section 3.6.
"Company Disclosure Documents" is defined in Section 3.8.
"Company Parties" means the Company and the Subsidiary.
"Company Representatives" means the Affiliates, officers, directors,
employees, attorneys, accountants, financial advisors and agents of any Company
Party and any other Person who has entered into the Stockholders Agreement with
Buyer on or about the date hereof.
-2-
<PAGE>
"Company's knowledge", "knowledge of the Company" and similar terms
relating to the knowledge of any Company Party mean the actual knowledge of any
officer or director of the Company.
"Confidential Information" means any confidential information or trade
secrets of any Company Party, including personnel information, know-how and
other technical information, customer lists, customer information and supplier
information.
"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment that is binding on any Person or its property under
applicable Law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable Law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or right to receive damages or payment of
penalties.
"DGCL" is defined above in the Background section.
"Disclosure Schedule" is defined in Section 3.
"Effective Time" is defined in Section 2.2.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other encumbrance on any
property or property interest.
"Environmental Law" means any Federal, State, interstate or local Law,
regulation, rule, requirement, administrative interpretation, directive,
judgment, decree, order, policy, guidance, permit or license pertaining to the
protection of human health or the environment, or the regulation of Hazardous
Substances, including without limitation, the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), the Clean Air Act, the Water Pollution Control Act,
the Safe Drinking Water Act, and the Toxic Substances Control Act ("TSCA").
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" is defined in Section 3.6.
-3-
<PAGE>
"GAAP" means generally accepted accounting principles.
"Governmental Entity" means any Federal, State, interstate or local
political subdivision, body, department, agency, or instrumentality.
"Governmental Permits" is defined in Section 3.14.
"Hazardous Substance" means any substance or material: (i) the presence of
which requires investigation or remediation under any Environmental Law; (ii)
the generation, storage, treatment, transportation, disposal, remediation,
removal, handling or management of which is regulated by any Environmental Law;
(iii) that is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; or (iv) that contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
"Holder" is defined in Section 2.11(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"HSR Compliance" means compliance with the HSR Act.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, trade secrets, know-how and other intellectual
property.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state or foreign governmental agency or body, including those covering
environmental, energy, safety, health, transportation, bribery, recordkeeping,
zoning, antidiscrimination, antitrust and wage and hour matters.
"Liability" means any liability, indebtedness, guaranty, endorsement or
other obligation of or by any Person, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition or results of operations of the Company Parties,
taken as a whole.
"Material Contracts" is defined in Section 3.15(a).
"Merger Consideration" is defined in Section 2.6(a).
"Option" is defined in Section 2.6(b).
"Option Cancellation Acknowledgement" is defined in Section 2.6(b).
-4-
<PAGE>
"Option Plans" means the Company's 1993 Stock Option Plan, the Company's
1994 Stock Option Plan and the Company's 1994 Non-Employee Director Stock Option
Plan.
"Option Shares" is defined in Section 2.6(b).
"Patents" means all patents and patent applications.
"Paying Agent" means a financial institution that is reasonably acceptable
to the Buyer and the Company.
"Paying Agent Agreement" means an agreement among the Buyer, the Company
and the Paying Agent with respect to payment of the Merger Consideration, in a
form reasonably acceptable to the Company, the Buyer and the Paying Agent and
consistent with the terms hereof.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust, Governmental Entity or
other legal entity.
"Prime Rate" means the prime lending rate as announced from time to time in
THE WALL STREET JOURNAL.
"Prior Confidentiality Agreement" means the Confidentiality Agreement,
dated March 29, 1996, between Aurora Capital Partners, L.P. and Schroder
Wertheim with respect to the Company.
"Real Property" is defined in Section 3.12.
"Returns" means any returns, reports, forms or statements (including any
information returns) required to be filed with any Taxing Authority.
"Schroder Wertheim" means Schroder Wertheim & Co. Incorporated.
"SEC" means the United States Securities and Exchange Commission.
"Securityholder Documents" is defined below in Section 2.11(a).
"Series A Subsidiary Preferred Stock" means the Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of the Subsidiary.
"Series B Subsidiary Preferred Stock" means the Series B Redeemable
Preferred Stock, par value $0.01 per share, of the Subsidiary.
"Severance Agreements" means the Change of Control Agreements, dated
February 13, 1996, between the Company and each of the Persons identified on the
Disclosure Schedule.
"Shares is defined in Section 2.6(a).
-5-
<PAGE>
"Subsidiary" means Adco Products, Inc., a Michigan corporation.
"Subsidiary Preferred Stock" means the Series A Subsidiary Preferred Stock
and the Series B Preferred Stock.
"Surviving Corporation" is the Company at the Effective Time.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, capital, sales, use, AD VALOREM, value
added, franchise, bank shares, withholding, payroll, employment, disability,
workers' compensation, excise, property, alternative or add-on minimum,
environmental or other taxes, assessments, duties, fees, levies or other
governmental charges of any nature whatever, whether disputed or not, together
with any interest, penalties, additions to tax or additional amounts with
respect thereto.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction, or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Termination Date" is defined in Section 2.8(a).
"Transactions" means the Merger and the other transactions contemplated by
this Agreement.
"Transaction Document" means this Agreement, the Certificate of Merger and
any other documents contemplated hereby.
2. THE MERGER.
2.1 THE MERGER. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the DGCL, the Acquisition Company
shall be merged with and into the Company as soon as practicable, but in any
event within five business days, following the satisfaction or waiver of the
conditions set forth in Sections 7 and 8. Following the Merger, the Company
shall continue as the surviving corporation (the "Surviving Corporation") under
the name "Adco Technologies Inc." and shall continue its existence under the
laws of the State of Delaware, and the separate corporate existence of the
Acquisition Company shall cease.
2.2 EFFECTIVE TIME. The Merger shall be consummated by filing with the
Delaware Secretary of State a certificate of merger in the form attached hereto
as Exhibit A (the "Certificate of Merger"), as is required by, and executed in
accordance with, the relevant provisions of the DGCL. The Merger shall be
effective at the time of such filing (the "Effective Time").
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Section 259 of the DGCL.
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2.4 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of the Acquisition Company shall be the Certificate of
Incorporation of the Surviving Corporation. The Bylaws of the Acquisition
Company shall be the Bylaws of the Surviving Corporation.
2.5 DIRECTORS AND OFFICERS. The Disclosure Schedule sets forth the names
of the Persons who shall be the directors and officers of the Surviving
Corporation at the Effective Time.
2.6 CONVERSION OF SHARES AND OPTIONS.
(a) Each Common Share issued and outstanding immediately prior to the
Effective Time (collectively, the "Shares") (other than Dissenting Shares, as
defined in Section 2.10) shall, by virtue of the Merger and without any action
on the part of the Holder (defined below) thereof, be converted into the right
to receive, except as otherwise provided in Section 2.11, $10.25 in cash (the
"Merger Consideration"). Any Common Share held in the treasury of the Company
shall be cancelled.
(b) Each option to acquire Common Shares that is outstanding
immediately prior to the Effective Time (an "Option") shall, by virtue of the
Merger and without any action on the part of the Holder thereof except as
provided below in this paragraph (b), be converted into the right to receive a
net amount in cash equal to the Merger Consideration allocable to the Common
Shares then subject to the Option (the "Option Shares") minus the aggregate
exercise price of the Option for acquisition of the Option Shares, upon delivery
of an executed acknowledgement of the cancellation of the Option (an "Option
Cancellation Acknowledgement"). All Options and any other rights that any other
Person may have under any of the Option Plans (except for the right to receive
cash as provided in this Section 2) shall terminate to the extent such Options
and any such other rights shall not have been exercised by the Effective Time.
(c) The aggregate Merger Consideration will be payable upon the
surrender of the certificates and other documentation specified in Section 2.11.
(d) The Buyer shall take all steps necessary to provide the Surviving
Corporation with funds, as of the Effective Time, in an amount sufficient to
make all the payments contemplated by this Section 2.6 at the Effective Time in
accordance with Section 2.9 and Section 2.11.
2.7 CONVERSION OF ACQUISITION COMPANY CAPITAL STOCK. Each share of capital
stock of the Acquisition Company issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the Holder (defined below) thereof, be converted into the right to receive
one share of common stock of the Surviving Corporation.
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2.8 STOCKHOLDERS' MEETINGS; SECURITIES AND EXCHANGE COMMISSION FILINGS.
(a) Consistent with applicable law, the Company shall cause a meeting
of its stockholders to be duly called and held as soon as reasonably practicable
(and in any event before October 31, 1996 (the "Termination Date")) for the
purpose of considering and taking action upon this Agreement and the Merger (the
"Special Meeting"). Subject to the fiduciary duties of the Board of Directors of
the Company, under applicable Law, as determined by such directors, in good
faith after consultation with and based upon the written advice of independent
legal counsel, the Board of Directors of the Company will recommend that its
stockholders approve this Agreement and the Merger and the Board of Directors of
the Company and the Company shall use commercially reasonable efforts to obtain
stockholder approval of this Agreement and the Merger.
(b) The Buyer will promptly prepare and file with the SEC and all
securities exchanges, if any, on which the Company's shares are listed for
trading the documents, schedules and amendments and supplements thereto required
to be filed with respect to the Transactions. In connection with approval of
this Agreement and the Merger, the Company will promptly prepare and file with
the SEC a preliminary proxy statement relating to the Transactions, which shall
consist of proxy materials for use in soliciting the vote of the stockholders of
the Company (the "Preliminary Proxy Statement"), and will use all reasonable
efforts to respond to the comments of the SEC after consultation with the Buyer
and to cause a definitive proxy statement (such proxy statement and any
amendments or supplements thereto are referred to herein as the "Definitive
Proxy Statement") to be mailed to the Company's stockholders as soon as
reasonably practicable. The Preliminary Proxy Statement submitted to the SEC and
the Definitive Proxy Statement mailed to the Company's stockholders shall be
subject to prior review by and approval of the Buyer, which approval may not be
unreasonably withheld.
(c) The stockholder vote required for the adoption of this Agreement
and the Merger by the Company shall be the vote required by the DGCL. Subject to
the fiduciary duties of the Board of Directors of the Company under applicable
Law, as determined by such directors. in good faith after consultation with and
based upon the written advice of independent legal counsel.,(i) the Definitive
Proxy Statement shall contain the determinations and recommendations of the
Board of Directors of the Company set forth in Section 3.5 hereof and (ii) the
Company shall use commercially reasonable efforts to solicit from holders of
Common Shares proxies in favor of adoption and approval of this Agreement and
the Merger, and shall take all other reasonable action necessary or helpful to
secure the vote of holders of Common Stock required by the DGCL to effect the
Merger.
(d) The Buyer, as the sole stockholder of the Acquisition Company,
hereby approves the Merger and this Agreement.
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2.9 CLOSING.
(a) As soon as practicable, but in any event after September 15, 1996
and within five business days, after the satisfaction or waiver of the
conditions set forth in Sections 7 and 8, a closing (the "Closing") will be held
at the offices of Gibson, Dunn & Crutcher, 200 Park Avenue, New York, New York
10166 (or such other place as the parties may agree). The date on which the
Closing occurs is hereinafter referred to as the "Closing Date." At the Closing,
the respective designated parties thereto shall deliver (i) the documents
referred to in Sections 7 and 8, and (ii) the Certificate of Merger, executed
and otherwise prepared for filing. The Surviving Corporation shall also deliver
at the Closing by a wire transfer of same day funds the Merger Consideration
payable to those Holders who have delivered the appropriate documents under
Section 2.11 and to the Paying Agent the aggregate Merger Consideration that may
be payable in accordance with the Paying Agent Agreement to all other Holders
upon delivery of the appropriate documents under Section 2.11.
(b) Contemporaneously with the Closing, the Surviving Corporation
shall deliver to the Delaware Secretary of State a duly executed and verified
Certificate of Merger, as required by the DGCL, and the parties shall take all
such other and further actions as may be required by applicable Law to make the
Merger effective upon the terms and subject to the conditions hereof.
2.10 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, the Shares that are issued and outstanding immediately prior to the
Effective Time and that are held by a stockholder who did not vote in favor of
the Merger and who complies with all of the relevant provisions of Section 262
of the DGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, unless and until such Holder shall have failed
to perfect or shall have effectively withdrawn or lost such Holder's rights to
appraisal under the DGCL; and any such Holder shall have only such rights in
respect of the Dissenting Shares owned by such Holder as are provided by Section
262 of the DGCL. If any such Holder shall have failed to perfect or shall have
effectively withdrawn or lost such right, such Holder's Dissenting Shares shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive the Merger Consideration
without any interest thereon, pursuant to the terms of Section 2.6. The Company
shall give the Buyer prompt notice of any demand received by the Company for
appraisal of Shares, and, prior to the Effective Time, the Buyer shall have the
right to direct all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, the Company will not, except with the prior written
consent of the Buyer, voluntarily make any payment with respect to, or settle or
offer to settle, any claim made by any Holders owning the Dissenting Shares.
2.11 EXCHANGE OF SHARES AND OPTIONS.
(a) At and after the Effective Time, the Surviving Corporation shall
pay to each record holder (a "Holder"), as of the Effective Time, of (i) an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Shares (the "Certificates"), or (ii) an Option, upon the
Holder's delivery of the respective Securityholder Documents (defined
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below), an amount in same day funds equal to the product of the number of Shares
represented by such Certificate, or Option Shares subject to such Option,
multiplied by the Merger Consideration. In the case of an Option, however, the
aggregate exercise price for the Option Shares shall be deducted from such
payment. The documents to be delivered by Holders of Shares or Options at and
after the Effective Time (the "Securityholder Documents") shall be (A) in the
case of Shares, the Certificates representing the Shares and a duly executed
letter of transmittal in the form provided by the Company, and (B) in the case
of the Options, a duly executed Option Cancellation Acknowledgement. All such
surrendered Certificates shall be cancelled upon their delivery. Except as
provided in Section 2.11(c), the Surviving Corporation shall pay any transfer or
similar taxes required by reason of the exchange of Shares and Options.
(b) With respect to each Certificate not so surrendered at the
Closing, the Surviving Corporation shall promptly thereafter mail to the Holder
thereof, a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss of title to such Certificate shall pass, only upon
proper delivery of the Certificate and such letter of transmittal to the
Surviving Corporation) and instructions for delivering such Certificate in
exchange for payment of the Merger Consideration. Upon delivery to the Surviving
Corporation of such Certificate, together with such letter of transmittal, the
Holder of the Certificate shall be paid in exchange therefor cash in an amount
equal to the product of the number of Shares represented by such Certificate
multiplied by the Merger Consideration, and such Certificate shall then be
cancelled. The Company shall follow a similar procedure with respect to any
Options to the extent that the respective Securityholder Documents shall not
have been delivered at the Effective Time.
(c) No interest will be paid or accrued on the amounts payable upon
the surrender of the Securityholder Documents. If payment is to be made to a
Person other than the Person in whose name a Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or similar
taxes required by reason of the payment to a Person other than the Holder of the
Certificate surrendered or shall establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 2.11, each Certificate (other
than Certificates evidencing Dissenting Shares) shall represent for all
purposes, and until the respective Securityholder Documents are delivered with
respect to Options, such Option shall represent for all purposes, the right to
receive payment of the amounts specified in Section 2.6 in respect of such
Shares or Options.
(d) Any portion of the funds deposited with the Paying Agent which
remain undistributed to the Holders of Shares or Options for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any Holder of Shares or Options who has not theretofore complied with this
Section 2.11 shall thereafter look only to the Surviving Corporation for payment
of the sums to which such Holder is entitled pursuant to this Agreement.
(e) Neither the Buyer nor the Surviving Corporation shall be liable
to any Holder of Shares or Options for any cash delivered by the Paying Agent or
the Surviving
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Corporation in good faith to a public official pursuant to an applicable
abandoned property, escheat or similar law.
(f) The Buyer or the Surviving Corporation (or the Paying Agent on
their behalf) shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Holder of Shares or Options
such amounts, if any, as the Buyer or the Surviving Corporation is required to
deduct and withhold with respect to the making of such payment under the Code or
any provisions of any Law related to Taxes. To the extent that amounts are so
withheld by the Buyer or the Surviving Corporation (or the Paying Agent on their
behalf), such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Holder of the relevant Shares or Options in
respect of which such deduction and withholding was made by the Buyer or the
Surviving Corporation (or the Paying Agent on their behalf).
2.12 NO FURTHER TRANSFER OF SHARES. After the Effective Time, there shall
be no transfers of Shares that were outstanding immediately prior to the
Effective Time on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for cash as
provided in this Section 2. At the Effective Time, the stock ledger of the
Company shall be closed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer and the Acquisition
Company as follows, except to the extent specified on the disclosure schedule
that the Company has provided to the Buyer on the date hereof (the "Disclosure
Schedule") or to the extent specified in the Company Disclosure Documents
(defined below):
3.1 CORPORATE. Each Company Party is a corporation duly organized, validly
existing and in good standing under the Laws under which it was incorporated.
Each Company Party is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and Bylaws of each Company Party that have been delivered to the Buyer have been
duly adopted and are current, correct and complete. Each Company Party has all
necessary power and authority to own, lease and operate its properties and other
assets and to carry on the Business as it is now being conducted. The Disclosure
Schedule lists (or the Company Disclosure Documents list) with respect to each
Company Party its name, jurisdiction of incorporation, officers and directors
and the states in which qualified to do business as a foreign corporation.
3.2 AUTHORIZATION. The Company has the requisite corporate power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by the Company have been duly authorized by all
necessary corporate action. other than stockholder approval in accordance with
the DGCL. Each Transaction Document executed and delivered by the Company
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as of the date hereof has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms. Any Transaction Document executed and
delivered by the Company after the date hereof will be duly executed and
delivered by the Company and will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
3.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for HSR Compliance and
for any items specified in the Disclosure Schedule, neither the execution and
delivery by the Company of the respective Transaction Documents to which it is
or will be a party, nor the consummation of the Transactions, will require any
filing, consent or approval under or constitute a Default under (a) any
Regulation or Court Order to which either Company Party is subject, (b) the
Charter Documents or Bylaws of either Company Party or (c) any material Contract
or other material document to which either Company Party is a party or by which
any of its Assets may be subject.
3.4 CAPITALIZATION AND STOCK OWNERSHIP. As of the date hereof, (a) the
total authorized capital stock of the Company consists of (i) 9,000,000 shares
of Common Stock, of which 5,150,000 shares are issued and outstanding, and (ii)
100,000 shares of Preferred Stock, par value $0.01 per share, no shares of which
are issued and outstanding, and (b) Options to acquire 293,318 Option Shares are
outstanding. Except as set forth in the immediately preceding sentence, there
are outstanding (i) no shares of capital stock or voting securities of the
Company, (ii) no securities of either Company Party convertible into, or
exercisable for the purchase of, or exchangeable for shares of capital stock or
voting securities of the Company, (iii) no options or other rights to acquire
from either Company Party, and no obligations of the Company to issue, any
capital stock, voting securities or securities convertible into, or exercisable
for the purchase of, or exchangeable for capital stock or voting securities of
the Company and (iv) no equity equivalents, interest in the ownership or
earnings of the Company or other similar rights. The outstanding shares of
Common Stock are all duly and validly authorized and issued, fully paid and
non-assessable. The Options are owned of record by the Persons listed in the
Disclosure Schedule or the Company Disclosure Documents, in the amounts shown
therein and with the respective option prices set forth therein. There are no
outstanding obligations of either Company Party to repurchase, redeem or
otherwise acquire any Shares.
3.5 BOARD RECOMMENDATION. By a vote of the directors present at a meeting
of the Company's Board of Directors (which meeting was duly called and held and
at which a quorum was present), the Board of Directors of the Company
unanimously (a) approved and adopted this Agreement, including the Merger and
the other Transactions, and determined that the Merger is fair to the
stockholders of the Company, (b) resolved to recommend approval and adoption of
this Agreement, including the Merger and the other Transactions, by the
stockholders of the Company, (c) took all corporate actions required to be taken
by the Board of Directors for the consummation of the Transactions and all
actions required to render the provisions of Section 203 of the DGCL restricting
business combinations with interested stockholders inapplicable to the Merger.
Schroder Wertheim has delivered to the Company's Board of Directors its oral
opinion
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on the date hereof to the effect that on such date, the Merger Consideration is
fair to the holders of the Common Shares from a financial point of view.
3.6 FINANCIAL STATEMENTS. The Company has delivered to the Buyer audited
financial statements of the Company consisting of consolidated balance sheets as
of the end of its fiscal year in 1994 and 1995 and the related statements of
income, retained earnings, stockholders' equity and cash flows for the fiscal
years then ended, certified by Ernst & Young LLP (the "Audited Statements"). The
Company has also delivered to the Buyer an unaudited balance sheet, and
statements of income and cash flows as of March 31, 1996 and for the fiscal
quarterly period then ended (the "Interim Statements"). The Audited and Interim
Statements are referred to herein as the "Financial Statements." The Audited
Financial Statements and the Interim Statements have been prepared in conformity
with GAAP consistently applied, and when read together with any related notes
thereto, the Audited Financial Statements and the Interim Statements fairly
present in all material respects the financial position of the Company at such
dates and the results of operations for the periods ended on such dates, subject
in the case of the Interim Statements to normal year-end audit adjustments,
which adjustments will not in the aggregate be materially adverse to the
consolidated financial position or results of operations of the Company. For
purposes of this Agreement, the balance sheet of the Company as of March 31,
1996 is referred to as the "Company Balance Sheet" and the date thereof is
referred to as the "Company Balance Sheet Date."
3.7 PROXY MATERIALS. The Definitive Proxy Statement will not, at the date
when the Definitive Proxy Statement is first mailed to the Company's
stockholders and at the date of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty regarding information
with respect to the Buyer or any of its officers, directors or affiliates or
associates (as such terms are defined in Rule 12b-2 of the Exchange Act). At the
date the Definitive Proxy Statement is mailed to the Company's stockholders, the
Definitive Proxy Statement will comply, as to form, in all material respects,
with the requirements of all applicable Laws, including the 1934 Act and the
rules and regulations promulgated by the SEC thereunder.
3.8 COMPANY DISCLOSURE DOCUMENTS. The Company has filed all required
forms, reports, statements, schedules and other documents with the SEC since the
effective date of the Company's first Registration Statement on Form S-1
(collectively, the "Company Disclosure Documents"). The Company has furnished to
the Buyer such Registration Statement on Form S-l, including its final
prospectus dated February 14, 1995 and the Exhibits to such Registration
Statement, its Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and its Quarterly Report on Form 10-Q for the period ending March 31,
1996, which are part of the Company Disclosure Documents. The Company has not
held any meetings of its stockholders (whether annual or special) since February
14, 1995. Each of such Company Disclosure Documents, at the time it was filed,
complied in all material respects with all applicable requirements of the 1933
Act and the 1934 Act, and with the forms, rules and regulations of the SEC
promulgated thereunder, and did not contain at the time filed any untrue
statement of a
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material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made. not misleading, except for the
omission of the Severance Agreements therefrom.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. There are no Liabilities of any
Company Party except (a) to the extent reflected in the Company Balance Sheet,
(b) those Liabilities described in this Agreement, the Disclosure Schedule or
the Company Disclosure Documents, (c) those Liabilities incurred in the ordinary
course of business since the Company Balance Sheet Date, (d) those Liabilities
not required under GAAP to be reflected in the Financial Statements and that
would not, individually or in the aggregate, have a Material Adverse Effect and
(e) Liabilities related to this Agreement and the Transactions.
3.10 TAXES. (a) Except for Returns for Taxes or Tax Assessments that are
not material, each Company Party has duly filed all Returns required to be
filed, and has paid all Taxes that have become due pursuant to such returns or
pursuant to any assessment received by any Company Party.
(b) Each Company Party has duly withheld or collected all material
taxes and other assessments and levies that such Company Party has been required
by law to withhold or to collect, and such Company Party has paid over such
amounts to the proper governmental authorities or is properly holding such
amounts for such payment.
(c) To the knowledge of the Company, there are no proceedings or
other actions for the assessment and collection of additional Taxes of any kind
for any period for which returns have or should have been filed.
(d) The reserves for Taxes (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the Financial Statements are sufficient for all unpaid Taxes, whether or not
disputed, of any Company Party.
(e) Except as described in the Disclosure Schedule, no Company Party
is a party to an agreement extending the time within which to file any Tax
Return or extending the statute of limitations for any period with respect to
any Tax to which any Company Party may be subject. No claim has ever been made
by any Taxing Authority in a jurisdiction in which any Company Party does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction
except for any such case where the amount of such taxation would not be
material.
(f) The Company has delivered to the Buyer complete and correct
copies of all federal, state, local and foreign income Tax Returns filed, and
all Tax examination reports and statements of deficiencies assessed against or
agreed to, by any Company Party for all taxable periods ended on or after
December 31, 1991.
(g) No Company Party has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
require it to make any payments, that are not deductible under Section 280G of
the Code.
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(h) There are no material Encumbrances of any sort on the Assets of
any Company Party except for Encumbrances for Taxes not yet due and payable. The
Company has no knowledge of any reasonable basis for the assertion of any claim
relating or attributable to Taxes that, if adversely determined, would result in
any material Encumbrance on the Assets of any Company Party.
(i) None of the Assets of any Company Party constitutes tax-exempt
bond financed property or tax-exempt use property, with the meaning of Section
168 of the Code. No Company Party is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code as
in effect prior to the Tax Reform Act of 1986, or to any "long-term contract"
within the meaning of Section 460 of the Code.
(j) No Company Party is a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the Assets of any Company Party is subject to an election
under Section 341(f) of the Code or comparable provisions of any state statutes.
(k) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
(1) Except as described in the Disclosure Schedule, no Company Party
is a party to a tax sharing or allocation agreement nor does any Company Party
have any obligation to pay any amounts under any such agreements. No Company
Party has any Liability for Taxes of any Person (i) under Section 1.1502-6 of
the Treasury Regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by Contract or (iv) otherwise.
(m) The Company is not a party to any written, oral or implied
agreement or obligation to provide any "covered employee," as defined in Section
162(m)(3) of the Code, with remuneration in excess of $1 million, that would be
disallowed as a deduction for federal income tax purposes pursuant to Section
162(m) of the Code.
(n) The tax basis of the Assets of all Company Parties for purposes
of determining future amortization, depreciation, and other federal income tax
deductions is properly reflected, in all material respects, on the Company's tax
books and records.
3.11 TITLE TO ASSETS AND RELATED MATTERS. Each Company Party has good and
marketable title to all of its Assets, free from any Encumbrances except (a)
items specified in the Disclosure Schedule, (b) items described in any notes to
the Financial Statements, (c) minor matters that, in the aggregate, would not
have a Material Adverse Effect, and (d) constitutional and statutory liens
arising from the obligation to pay for the provision of materials or services
not yet in Default and state and local taxes not yet due.
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3.12 REAL PROPERTY. The Disclosure Schedule describes (or the Company
Disclosure Documents describe) all real estate owned or leased by any Company
Party and used in the operation of the Business as well as any other real estate
that is in the possession of or leased by any Company Party (as tenant or
landlord) (collectively, the "Real Property"). Except as set forth in the
Disclosure Schedule, each Company Party has good and marketable title to any
Real Property listed on the Disclosure Schedule as owned by such Company Party,
free and clear of any Encumbrances other than minor matters that, in the
aggregate, would not have a Material Adverse Effect. In addition, except as set
forth in the Disclosure Schedule, (a) none of the buildings or structures
located on any Real Property nor any appurtenances thereto or equipment thereon,
nor the operation or maintenance thereof, violates in any material respect any
restrictive covenants or encroaches in any material respect on any property
owned by others; (b) nor does any building or structure of third parties
encroach in any material respect upon any such Real Property; (c) each Real
Property complies in all material respects with applicable zoning, building and
occupancy codes relating to the current operations thereon; (d) no Real Property
contains any material defect that would prevent the continued use and operation
of such Real Property; (e) there are no material Defaults by the tenant, or to
the Company's knowledge by the landlord under any lease of any portion of the
Real Property; and (f) the copies of such leases delivered pursuant to the terms
hereof are true, correct and complete in all material respects, except in the
case of any of such items in clauses (a) through (f) where such violations.
encroachments, events of non-compliance, defects, Defaults or inaccuracies,
individually and in the aggregate, would not have a Material Adverse Effect.
3.13 SUBSIDIARIES. Except for the Company's ownership of the Subsidiary, no
Company Party owns, directly or indirectly, any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
business trust, joint venture or other legal entity. The total authorized
capital stock of the Subsidiary consists of (a) 150,000 shares of common stock,
par value $1.00 per share, of which 116,189 shares are issued and outstanding
(the "Subsidiary Common Shares"), (b) 4,856 shares of Series A Subsidiary
Preferred Stock, of which 3,500 shares are issued and outstanding and (c) 1,356
shares of Series B Subsidiary Preferred Stock, of which 420 shares are issued
and outstanding. The Company owns all of the issued and outstanding Subsidiary
Common Shares, free and clear of any Encumbrances, and Nalco Chemical Company
owns of record all of the issued and outstanding Subsidiary Preferred Stock. The
Company has delivered to the Buyer true and correct copies of the [Certificate
of Designation] for the Series A Subsidiary Preferred Stock and the Series B
Subsidiary Preferred Stock. As of May 14, 1996 the aggregate redemption price
for all such shares was $3,920,000 and such aggregate redemption price increases
by $767.12 each day after May 14, 1996 that such shares remain outstanding.
Except as set forth in the immediately preceding sentence, there are outstanding
(i) no shares of capital stock or voting securities of the Subsidiary, (ii) no
securities of either Company Party convertible into, or exercisable for the
purchase of, or exchangeable for shares of capital stock or voting securities of
the Subsidiary, (iii) no options or other rights to acquire from either
Subsidiary Party, and no obligations of the Subsidiary to issue, any capital
stock, voting securities or securities convertible into, or exercisable for the
purchase of, or exchangeable for capital stock or voting securities of the
Subsidiary and (iv) no equity equivalents, interest in the ownership or earnings
of the Subsidiary or other similar rights. All of the Subsidiary Common Shares
are duly and validly authorized and issued, fully paid and non-
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assessable. There are no outstanding obligations of either Company Party to
repurchase, redeem or otherwise acquire any capital stock or voting securities
of the Subsidiary.
3.14 LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS.
(a) Except as described in the Disclosure Schedule, there is no
Litigation that is pending or, to the Company's knowledge, threatened against
any Company Party or any of their respective Assets. To the Company's knowledge,
there has been no Default under any Laws applicable to any Company Party, except
for any Defaults that would not have a Material Adverse Effect. There has been
no Default with respect to any Court Order applicable to any Company Party.
Except as described in the Disclosure Schedule, neither Company Party is subject
to any Court Order which, insofar as can be reasonably foreseen, individually or
in the aggregate, in the future would have a Material Adverse Effect or would
prevent or delay the consummation of the Transactions.
(b) Without limiting the generality of Section 3.14(a), except as
described on the Disclosure Schedule and except for those situations that,
individually or in the aggregate, would not have a Material Adverse Effect:
(i) all Company Parties are in compliance with all orders,
permits, conditions, standards, requirements and schedules required or imposed
under any Environmental Law;
(ii) no Company Party has received any notice, claim,
subpoena, or summons, or been threatened with any notice, claim, subpoena or
summons from any Person alleging: (a) any liability of any Company Party under
any Environmental Law or (b) any violation by any Company Party of any
Environmental Law;
(iii) there are and have been no facts, circumstances or
conditions (including any Hazardous Substances that have been released, disposed
of, emitted, treated, stored, generated, placed, deposited, discharged, or
spilled at, upon or under any facility owned, operated or leased by any Company
Party or any facility to which any Company Party has sent any Hazardous
Substance) that are reasonably likely to give rise to (x) any Liability of any
Company Party under any Environmental Law or (y) any violation by any Company
Party of any Environmental Law;
(iv) all Company Parties have all permits required under any
Environmental Law; and
(v) all Company Parties have delivered to Buyer all
environmental studies and reports in their possession with respect to any
facilities or real property ever owned, operated or leased by any Company Party.
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(c) Each Company Party has complied, in all material respects, with
all of its governmental permits, licenses, registrations, certificates of
occupancy, approvals and other authorizations (the "Governmental Permits").
3.15 CONTRACTS AND COMMITMENTS.
(a) All Contracts described in Item 601(b)(10) of Regulation S-K to
which any Company Party is a party or may be bound ("Material Contracts") have
been filed as exhibits to, or incorporated by reference in, the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 except for the
Severance Agreements. To the Company's knowledge, no Company Party has committed
a Default under any Material Contract, except for Defaults that, individually or
in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect. The Company has delivered or made available to the Buyer true
and complete copies of all Material Contracts.
(b) The Disclosure Schedule describes any Contract to which any
Company Party is a party or may be bound that limits or restrains any Company
Party from engaging or competing in any business or that creates a partnership,
joint venture, "teaming arrangement" or other similar arrangement.
(c) The Disclosure Schedule describes the Company's good faith
estimate of the fees and expenses that it will incur in connection with the
Transactions, including fees and expenses for its investment banker, accountants
and lawyers, printing, transfer agent, mailing and filing with the SEC.
3.16 EMPLOYEE RELATIONS. Except as described in the Disclosure Schedule, no
Company Party is (a) a party to, involved in or, to the Company's knowledge,
threatened by, any labor dispute or unfair labor practice charge, or (b)
currently negotiating any collective bargaining agreement, and no Company Party
has experienced any work stoppage during the last three years. The Company has
delivered to the Buyer a complete and correct list of the names and salaries,
bonus and other cash compensation of all employees (including officers) of the
Company Parties whose total cash compensation for 1995 exceeded, or whose total
compensation for 1996 is expected to exceed, $100,000.
3.17 ERISA.
(a) Except as set forth in the Disclosure Schedule, there are no
employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between either Company Party and any
current or former stockholder, officer, director, employee or Affiliate or
either Company Party are currently in effect. The Disclosure Schedule also
contains a complete list of all Benefit Plans sponsored or maintained by any
Company Party or under which any Company Party may be obligated. The Company has
delivered to the Buyer (i) accurate and complete copies of all Employment
Agreements and all Benefit Plan documents and of any summary plan descriptions,
summary annual reports and insurance contracts relating
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thereto, (ii) accurate and complete detailed summaries of all unwritten Benefit
Plans, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all Benefit Plans for which
financial statements or actuarial reports are required or have been prepared and
(iv) accurate and complete copies of all annual reports for all Benefit Plans
(for which annual reports are required) prepared within the last two years.
Except as specifically disclosed in the Disclosure Schedule, there are no
Employment Agreements or any other similar agreements to which either Company
Party is a party under which the Merger or Transactions (i) will require any
payment by either Company Party or any consent or waiver from any stockholder,
officer, director, employee, consultant or other Person or (ii) will result in
any change in the nature of any rights of any stockholder, officer, director,
employee or agent of either Company Party as a result of the Merger or
consummation of the Transactions. Except as specifically disclosed in the
Disclosure Schedule, no individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Benefit Plan,
including the right to receive any "parachute payment," as defined in Section
280G of the Code, or become entitled to severance, termination allowance or
similar payments as a direct result of the Merger or the Transactions.
(b) Except as described in the Disclosure Schedule, all Benefit Plans
conform in all material respects to, and are being administered and operated in
material compliance with, the requirements of ERISA, the Code and all other
applicable Laws. There have not been any "prohibited transactions," as such term
is defined in Section 4975 of the Code or Section 406 of ERISA involving any of
the Benefit Plans, that could subject any Company Party to any material penalty
or tax imposed under the Code or ERISA.
(c) Except as set forth in the Disclosure Schedule, any Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, and such determination remains in effect and
has not been revoked. Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely such qualification
or exemption; or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any Benefit
Plan.
(d) Except as set forth in the Disclosure Schedule, no Company Party
has a current or contingent obligation to contribute to any multiemployer plan
(as defined in Section 3(37) of ERISA).
(e) There are no pending or, to the knowledge of the Company,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of any Company Party or any of such party's
officers, directors or employees under ERISA or any other applicable Laws, or
claiming benefit payments other than those made in the ordinary operation of
such plans. To the Company's knowledge, the Benefit Plans are not the subject of
any investigation, audit or action by the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC"). Each
Company Party has made all required
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contributions under the Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums.
(f) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 498OB(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date, and (v) no such plan
provides benefits to retirees or the former employees of either Company Party or
the dependents of any of the foregoing.
3.18 PATENTS, TRADEMARKS. ETC. The Disclosure Schedule sets forth a
complete and correct list of each patent, patent application and docketed
invention, and all items which either Company Party claims as a trademark, trade
name or copyright, and all trade name registrations or applications, copyright
registrations or application for copyright registration, and each license or
licensing agreement for any of the foregoing to which either Company Party is a
party or by which either is bound. To the Company's knowledge, no Company Party
infringes upon or unlawfully or wrongfully uses any Intellectual Property owned
or claimed by another Person. Each Company Party either owns the entire right,
title and interest in, to and under, or has a valid license to use, any and all
Intellectual Property which is material to the conduct of the Business in the
manner that the Business is conducted.
3.19 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, the Company
Parties have conducted the Business in the ordinary course, and except as
described on the Disclosure Schedule, there has not been with respect to any
Company Party:
(a) any material adverse change in its Business, Liabilities,
consolidated results of operations or consolidated financial
condition;
(b) any distribution or payment declared or made in respect of
its capital stock by way of dividends, purchase or redemption of
shares or otherwise;
(c) any increase in the compensation payable or to become
payable to any director, officer, employee or agent, except for merit
and seniority increases for non-officer employees made in the ordinary
course of business, nor any other change in any employment or
consulting arrangement;
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(d) any sale, assignment or transfer of Assets, or any additions
to or transactions involving any Assets, other than those made in the
ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(f) any material change by either Company Party in its
accounting principles, methods or practices or the manner in which it
keeps its books and records or any material change by either Company
Party of its current general practices with regard to sales,
receivables, payables or accrued expenses.
(g) any Material Contract entered into by either Company Party,
or any waiver, amendment, termination or cancellation of any Material
Contract by either Company Party or any relinquishment of any rights
thereunder by either Company Party, other than, in each such case,
actions taken in the ordinary course of business consistent with past
practice; or
(h) any loan to or guarantee or assumption of any loan or
obligation on behalf of any director, officer, stockholder or employee
or either Company Party, except for travel advances occurring in the
ordinary course of business.
3.20 CORPORATE RECORDS. The minute books of the Company contain accurate,
complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders. The stock record books of the Company are also complete, correct
and current.
3.21 FINDER'S FEES. Except for Schroder Wertheim, the arrangements with
which have been disclosed to the Buyer in writing, no Person is or will be
entitled to any commission, finder's or other payment in connection with the
Transactions based on arrangements made by or on behalf of either Company Party.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER PARTIES.
The Buyer and the Acquisition Company, jointly and severally, represent and
warrant to the Company as follows, and all such representations and warranties
shall be true and correct at and as of the Closing Date as though then made:
4.1 CORPORATE. Each Buyer Party is a corporation duly organized, validly
existing and in good standing under which it was incorporated.
4.2 AUTHORIZATION. Each Buyer Party has the requisite corporate power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by each Buyer Party have been duly authorized by all
necessary corporate action, including any stockholder
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approval that may be required under applicable Law. Each Transaction Document
executed and delivered by any Buyer Party of the date hereof has been duly
executed and delivered by such Buyer Party and constitutes a valid and binding
obligation of such Buyer Party, enforceable against such Buyer Party in
accordance with its terms. Any Transaction Document executed and delivered by
any Buyer Party after the date hereof will be duly executed and delivered by
such Buyer Party and will constitute a valid and binding obligation of such
Buyer Party, enforceable against such Buyer Party in accordance with its terms.
4.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for HSR Compliance,
neither the execution and delivery by any Buyer Party of the Transaction
Documents to which it is or will be a party, nor the performance of the
Transactions to be performed by any Buyer Party, will require any filing,
consent or approval under or constitute a Default under (a) any Law or Court
Order to which any Buyer Party is subject, (b) the Charter Documents or Bylaws
of any Buyer Party or (c) any material Contract or other material document to
which any Buyer Party is a party.
4.4 AVAILABLE FUNDS. The Buyer Parties have provided the Company with a
true, correct and complete copy of a commitment letter from a financial
institution regarding the Buyer Parties' "bridge" financing for the Transactions
(the "Bridge Financing").
4.5 FINDER'S FEES. No Person is or will be entitled to any commission,
finder's or other payment from any Seller Party in connection with the
Transactions based on arrangements made by or on behalf of any Buyer Party.
5. COVENANTS OF THE COMPANY.
5.1 CLOSING CONDITIONS. At and prior to the Closing, the Company shall use
commercially reasonable efforts to fulfill the conditions specified in Section 7
to the extent that the fulfillment of such conditions is within its control,
except that the Company shall not be required to pay or expend any material
amount of funds that may be necessary to correct any Default under its
representations and warranties or to fulfill any of such conditions. The
foregoing obligation includes refraining from any actions that would cause the
Company's representations and warranties to be inaccurate in any material
respect as of the Closing, executing and delivering the agreements and other
documents referred to in Section 7 and using commercially reasonable efforts to
prepare all necessary documentation. The Company shall give the Buyer prompt
written notice of any event or development that occurs or fails to occur (and
that is known to the Company) that gives the Company reason to believe that the
conditions set forth in Section 7 will not be satisfied prior to the Termination
Date.
5.2 CONDUCT OF THE BUSINESS. Except as otherwise expressly provided in
this Agreement, during the period from the date hereof to the Effective Time,
neither Company Party will conduct its operations otherwise than in the ordinary
course of business consistent with past practice. Without limiting the
generality of the foregoing, and except as otherwise contemplated by this
Agreement, neither Company Party will, without the prior written consent of the
Buyer:
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(a) amend or propose to amend its Charter Documents or Bylaws;
(b) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including any stock
options or stock appreciation rights), except as required by the Options that
are outstanding and in effect as of the date hereof, or amend any of the terms
of any such securities or agreements that are outstanding as of the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
except for the payment of dividends in accordance with past practice, or redeem
or otherwise acquire any of its securities or any securities of its
subsidiaries;
(d) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and the
Subsidiary taken as a whole; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and the
Subsidiary, taken as a whole, (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than loans or
advances to employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or advance); (iv)
pledge or otherwise encumber shares of capital stock of the Company or the
Subsidiary; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Encumbrance thereupon;
(e) except as may be required by applicable Law, enter into, adopt or
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner, or (except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits or compensation expense to the Company, and
as required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including the granting of stock appreciation rights);
(f) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets that in the aggregate are material to
the Company and the Subsidiary taken as a whole, or enter into any commitment or
transaction outside the ordinary course of business consistent with past
practice which would be material to the Company and its subsidiaries taken as a
whole;
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(g) except as may be required as a result of a change in Law or in
GAAP, change in any material respect any of the accounting principles or
practices used by it;
(h) revalue in any material respect any of its Assets, including
writing down the value of inventory or writing-off notes or accounts receivables
other than in the ordinary course of business;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any Material Contract
other than in the ordinary course of business consistent with past practice;
(iii) authorize any new capital expenditure or expenditures which, individually,
is in excess of $500,000 or, in the aggregate, are in excess of $1,000,000;
provided that none of the foregoing shall limit any capital expenditure already
included in the Company's 1996 capital expenditure budget previously provided to
the Buyer; or (iv) enter into or amend any Contract providing for the taking of
any action that would be prohibited hereunder;
(j) make any Tax election or settle or compromise any income tax
liability material to the Company Parties taken as a whole;
(k) pay, discharge or satisfy Liabilities, other than the payment,
discharge or satisfaction in the ordinary course of business of Liabilities
reflected or reserved against in, or identified by specific reference in, the
Financial Statements (or the notes thereto) or incurred in the ordinary course
of business consistent with past practice;
(l) settle or compromise any pending or threatened suit, action or
claim relating to the Transactions; or
(m) take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.2(a) through 5.2(l) or any action that would
make any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect as of the date when made or would result in any of
the conditions set forth in Section 7 not being satisfied.
Nothing contained in this Agreement shall give the Buyer Parties, directly or
indirectly, the right to control or direct any Company Party's operations prior
to the Effective Time. Prior to the Effective Time, each Company Party shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its operations.
5.3 ACCESS TO INFORMATION. The Company shall, and shall cause the
Subsidiary to, give the Buyer and its representatives (including the Buyer's
accountants, counsel and employees), upon reasonable notice and during normal
business hours, full access to the properties, contracts, books, records and
affairs of the Company and the Subsidiary. The Company shall cause its officers
and employees, and the officers and employees of the Subsidiary, to furnish to
the Buyer all documents, records and information (and copies thereof) as the
Buyer may reasonably request; it being understood that (a) the Company, in its
sole discretion may deny or restrict any access (i) involving possible breaches
of applicable confidentiality agreements with third parties, or
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possible waivers of any applicable attorney-client privileges or (ii) if any
Buyer Party is in material breach of this Agreement, (b) such investigations
shall not under any circumstances interfere with the Company's or the
Subsidiary's operations, activities or employees, and (c) such investigations
shall not be of a nature that in the opinion of the Company may violate
applicable antitrust or similar laws. If this Agreement is terminated pursuant
to Section 9.1, (x) the Buyer Parties shall, and shall cause their
representatives to, keep confidential any Confidential Information obtained from
any Company Party (except as may be specifically (and only to the extent)
required to be disclosed by applicable Law or administrative or legal process or
pursuant to any securities exchange rules), it being understood that the Buyer
Parties will notify the Company in writing prior to any proposed disclosure of
such Confidential Information in order to enable the Company to seek an
appropriate protective order; and (y) the Buyer Parties shall return to the
Company Parties all documents (and reproductions thereof) supplied to any Buyer
Party by any Company Party. The foregoing covenants relating to confidentiality
are in addition to those included in the Prior Confidentiality Agreement.
5.4 NO SOLICITATION. From and after the date hereof, the Company, without
the prior written consent of the Buyer, will not, and will not authorize any of
the Company Representatives to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing information) or take any other action
to facilitate knowingly any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal
(defined below) from any Person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal or make or authorize any
statement, recommendation or solicitation in support of any Acquisition
Proposal; provided, however, that notwithstanding any other provision hereof,
the Company may (a) at any time prior to the time the Company's stockholders
shall have voted to approve this Agreement, engage in discussions or
negotiations with a third party who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with the
Company or any Company Representative after the date hereof) seeks to initiate
such discussions or negotiations and may furnish such third party information
concerning the Company, the Business or the Assets if, and only to the extent
that, (i)(x) the third party has first made an Acquisition Proposal in writing
that is financially superior to the Transactions and has demonstrated that the
funds necessary for the Acquisition Proposal are reasonably likely to be
available (as determined in good faith in each case by the Company's Board of
Directors after consultation with its financial advisors) and (y) the Company's
Board of Directors shall conclude in good faith, after considering applicable
provisions of state law, on the basis of written advice of outside counsel, that
such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law and (ii) prior to
furnishing such information to or entering into discussions or negotiations with
such Person, the Company (x) provides prompt notice to the Buyer to the effect
that it is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained in
Section 5.3 and the Prior Confidentiality Agreement; (b) comply with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer, or
(c) provided the Company terminates this Agreement pursuant to Section 9.1(h),
accept an Acquisition Proposal from a third party. The Company shall immediately
cease and terminate any existing solicitation, initiation,
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encouragement, activity, discussion or negotiation with any Persons conducted
heretofore by the Company or any Company Representatives with respect to the
foregoing. The Company shall not release any third party from, or waive any
provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors shall conclude in good faith, after considering applicable
provisions of state law, on the basis of oral or written advice of outside
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties. The Company shall notify the Buyer
orally and in writing of any such inquiries, offers or proposals (including the
terms and conditions of any such proposal, the identity of the Person making it
and a copy of any written Acquisition Proposal), within 24 hours of the receipt
thereof, shall keep the Buyer informed of the status and details of any such
inquiry, offer or proposal, and shall give the Buyer five days' advance notice
of any agreement to be entered into with, or any information to be supplied to,
any Person making such inquiry, offer or proposal. This Section 5.4, however,
shall not require the Company to identify any Person to whom it furnishes
information or enters into discussion or negotiations nor any Person who makes
any such inquiries, offers or proposals to the extent that identifying any such
Person would violate the terms of a confidentiality agreement with such Person
that was entered into prior to the date hereof. As used herein, "Acquisition
Proposal" shall mean a proposal or offer (other than by a Buyer Party) for a
tender or exchange offer, merger, consolidation or other business combination
involving any Company Party or any proposal to acquire in any manner a
substantial equity interest in, or all or any substantial part of the Assets of,
any Company Party.
5.5 ADDITIONAL AGREEMENTS. The Company will comply in all material
respects with all applicable Laws in connection with its execution, delivery and
performance of this Agreement and the Transactions. The Company shall use
commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals required under any Laws and to effect all
necessary registrations and filings under any Laws, and to use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
Without limiting the generality of the foregoing, the Company shall promptly
prepare and file a premerger notification in accordance with the HSR Act, shall
promptly comply with any requests for additional information, and shall use
commercially reasonable efforts to obtain termination of the waiting period
thereunder as promptly as practicable.
5.6 SUBSIDIARY PREFERRED STOCK. The Company shall cause the Subsidiary to
redeem on or before the Closing Date all of the issued and outstanding
Subsidiary Preferred Stock in accordance with the terms thereof as in effect on
the date of this Agreement.
6. COVENANTS OF THE BUYER PARTIES.
6.1 CLOSING CONDITIONS. At and prior to the Closing, each Buyer Party
shall use commercially reasonable efforts to fulfill the conditions specified in
Section 8 to the extent that the fulfillment of such conditions is within its
control, except that no Buyer Party shall be
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required to pay or expend any material amount of funds that may be necessary to
correct any Default under its representations and warranties or to fulfill any
of such conditions. The foregoing obligation includes refraining from any
actions that would cause any Buyer Party's representations and warranties to be
inaccurate in any material respect as of the Closing, executing and delivering
the agreements and other documents referred to in Section 8 and using
commercially reasonable efforts to prepare all necessary documentation. The
Buyer shall give the Company prompt written notice of any event or development
that occurs or fails to occur (and that is known to any Buyer Party) that gives
the Buyer reason to believe that the conditions set forth in Section S will not
be satisfied prior to the Termination Date.
6.2 BUYER FINANCING. The Buying Parties shall use commercially reasonable
efforts to obtain the Buyer Financing and shall notify the Company promptly of
any event or circumstances that give any Buyer Party a reason to believe that
the Buyer Financing may not be available.
6.3 INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE.
(a) For a period of six years after the Effective Time, the Buyer
shall cause the Surviving Corporation to (i) maintain in effect the current
provisions regarding indemnification of officers and directors contained in the
Charter Documents and Bylaws of each Company Party and any directors, officers
or employees indemnification agreements of any Company Party, and (ii) indemnify
the directors and officers of any Company Party to the fullest extent to which
any Company Party are permitted to indemnify such officers and directors under
their respective Charter Documents and Bylaws and applicable Law. The Buyer
hereby unconditionally and irrevocably guarantees for the benefit of such
directors, officers and employees the obligations of each Company Party under
the foregoing indemnification arrangements.
(b) For a period of four years after the Effective Time, the Buyer
shall cause the Surviving Corporation to maintain in effect the current policies
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by any Company Party (provided that the Buyer may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate. no less
advantageous to the insured in any material respect) with respect to claims
arising from facts or events which occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend more than an amount per year equal to 200% of the current annual
premiums paid by the Company (the "Premium Amount") to maintain or procure
insurance coverage pursuant hereto, and further provided that if the Surviving
Corporation is unable to obtain the insurance called for by this Section 6.3(b),
the Surviving Corporation will obtain as much comparable insurance as is
available for the Premium Amount per year.
6.4 BENEFIT PLANS. The Buyer will maintain, or cause the Surviving
Corporation to maintain, for a period of one year after the Effective Time,
Benefit Plans covering employees of any Company Parties that are no less
favorable, in the aggregate, to the employees covered by such plans than the
Benefit Plans of any Company Party in effect immediately prior to the
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Effective Time; provided, however, that the foregoing obligation shall not apply
to any Benefit Plans that provide for the issuance of stock or stock options of
any Company Party.
6.5 ADDITIONAL AGREEMENTS. Each Buyer Party will comply in all material
respects with all applicable Laws in connection with its execution, delivery and
performance of this Agreement and the Transactions. Each Buyer Party shall use
commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals required under any Laws and to effect all
necessary registrations and filings under any Laws, and to use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
Without limiting the generality of the foregoing, the Buyer shall promptly
prepare and file a premerger notification in accordance with the HSR Act, shall
promptly comply with any requests for additional information, and shall use
commercially reasonable efforts to obtain termination of the waiting period
thereunder as promptly as practicable.
7. CONDITIONS PRECEDENT TO THE BUYER PARTIES' OBLIGATIONS.
All obligations of the Buyer and the Acquisition Company to be performed on
the Closing Date shall be subject to the satisfaction (or waiver by the Buyer or
the Acquisition Company), prior thereto, of the following conditions:
7.1 REPRESENTATIONS TRUE AT CLOSING. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects, on and as of the date of this Agreement and on and as of the
Effective Time as if made on and as of such date except for (a) such
inaccuracies or breaches of warranty as to which the Buyer had actual knowledge
on or prior to the date hereof and (b) such inaccuracies or breaches of warranty
as would not, individually or in the aggregate, have a Material Adverse Effect.
7.2 PERFORMANCE OF COVENANTS. The Company shall have performed, in all
material respects, all covenants and agreements that are to be performed by it
under this Agreement on or prior to the Closing Date except for any breaches
thereof that do not or would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
7.3 LITIGATION AFFECTING CLOSING. No Court Order shall have been issued or
entered that prohibits consummation of the Merger.
7.4 REGULATORY COMPLIANCE AND APPROVALS. All applicable waiting periods
under the HSR Act shall have expired or early termination thereof shall have
been granted with respect to the consummation of the Merger, and all
governmental consents and approvals legally required for the consummation of the
Merger and the Transactions contemplated hereby shall have been obtained and be
in effect at the Effective Time on terms and conditions that would not have a
material adverse effect on the Surviving Corporation.
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7.5 CERTIFICATES. The Company shall have delivered a certificate of an
executive officer of the Company to the effect that the conditions set in
Sections 7.1 and 7.2 have been satisfied.
7.6 OPINION OF COUNSEL TO THE COMPANY. Morgan, Lewis & Bockius LLP,
counsel to the Company, shall have delivered to the Buyer their opinion, dated
the Closing Date, with respect to those matters reasonably requested by the
Buyer.
7.7 STOCKHOLDER APPROVAL. This Agreement and the Transactions shall have
been approved and adopted by the requisite vote of the stockholders of the
Company pursuant to the DGCL and holders of not more than 10% of the Shares
shall have perfected their dissenter rights under the DGCL prior to the Closing
Date.
7.8 NO REGULATORY ACTION. No action shall have been taken, and no statute,
rule or law shall have been enacted, by any state, federal or foreign government
or governmental agency which would prevent the consummation of the Merger.
8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.
All obligations of the Company to be performed on the Closing Date shall be
subject to the satisfaction (or waiver by the Company), prior thereto, of each
of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and warranties of
the Buyer Parties set forth in this Agreement shall be true and correct in all
material respects, on and as of the date of this Agreement and on and as of the
Effective Time as if made on and as of such date except for such inaccuracies or
breaches of warranty as to which the Company had actual knowledge on or prior to
the date hereof.
8.2 PERFORMANCE OF COVENANTS. The Buyer shall have performed in all
material respects all covenants and agreements that are to be performed by it
under this Agreement on or prior to the Closing Date.
8.3 LITIGATION AFFECTING CLOSING. No Court Order shall have been issued or
entered that prohibits consummation of the Merger.
8.4 REGULATORY COMPLIANCE AND APPROVALS. All applicable waiting periods
under the HSR Act shall have expired or early termination thereof shall have
been granted with respect to the consummation of the Merger.
8.5 CERTIFICATES. The Buyer shall have delivered a certificate of an
executive officer of the Buyer to the effect that the conditions set in Sections
8.1 and 8.2 have been satisfied.
8.6 APPROVAL OF MERGER. The Merger shall have been approved by the
stockholders of the Company in accordance with the DGCL.
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8.7 OPINION OF COUNSEL TO THE BUYER PARTIES. Gibson, Dunn & Crutcher,
counsel to the Buyer Parties, shall have delivered to the Company their opinion,
dated the Closing Date. with respect to those matters reasonably requested by
the Company.
8.8 STOCKHOLDER APPROVAL. This Agreement and the Transactions shall have
been approved and adopted by the requisite vote of the stockholders of the
Company pursuant to the DGCL.
8.9 NO REGULATORY ACTION. No action shall have been taken, and no statute,
rule or law shall have been enacted, by any state, federal or foreign government
or governmental agency that would prevent the consummation of the Merger.
9. TERMINATION.
9.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any time
before the Effective Time, in each case as authorized by the respective Board of
Directors of the Company and the Buyer:
(a) By mutual written consent of each of the Company and the Buyer;
(b) By either the Company or the Buyer if the Merger shall not have
been consummated on or before the Termination Date; provided, however, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date;
(c) By either the Company or the Buyer if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a Court Order (which Court Order the parties shall use
commercially reasonable efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order shall have become
final and nonappealable;
(d) By the Company or the Buyer if the required approvals of the
stockholders of the Company shall fail to have been obtained at a duly held
stockholders' meeting of the Company, including any adjournments thereof;
(e) By the Buyer if the Company shall have breached, or failed to
comply with, any of its obligations under this Agreement or any representation
or warranty made by the Company shall have been incorrect when made, and such
breach, failure or misrepresentation is not cured by the earlier of the
Termination Date or 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect;
(f) By the Company if the Buyer shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or
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warranty made by the Buyer shall have been incorrect in any material respect
when made, and such breach, failure or misrepresentation is not cured by the
earlier of the Termination Date or 20 days after notice thereof; or
(g) By the Company, prior to the approval of this Agreement by the
stock- holders of the Company, upon five days' prior notice to the Buyer, if, as
a result of a written Acquisition Proposal received by the Company from a Person
other than a party hereto or any of its Affiliates, the Board of Directors of
the Company determines in good faith that its fiduciary obligations under
applicable Law require that such Acquisition Proposal be accepted; provided,
however, that (i) such written Acquisition Proposal was received by the Company
without any solicitation, initiation, encouragement, discussion or negotiation,
directly or indirectly, by or with the Company or any Company Representative in
violation of the provisions of Section 5.4 of this Agreement, (ii) such
Acquisition Proposal is financially superior to the Transactions and the Person
proposing such Acquisition Proposal has demonstrated that the funds necessary
for such Acquisition Proposal are reasonably likely to be available (as
determined in good faith in each case by the Company's Board of Directors after
consultation with its financial advisors), and (iii) the Board of Directors of
the Company shall have concluded in good faith, after considering applicable
provisions of state law, on the basis of written advice of outside counsel, that
such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law.
9.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated under Section 9.1 hereof, this
Agreement shall become void and there shall be no Liability on the part of any
of the parties, except as set forth in this Section 9.2 and for any breach of
Sections 3.21, 4.5 or 11 or of the confidentiality covenants in Section 5.3.
(b) If this Agreement is terminated by the Company under Section
9.1(f) as a result of any Buyer Party's breach, the Buyer shall pay to the
Company a termination fee in an amount equal to the reasonable out-of-pocket
expenses of the Company Parties related to the Transactions, except that in the
case of a termination due to a breach existing on the date hereof that was known
to exist on the date hereof by any Buyer Party or a termination due to a wilful
breach by any Buyer Party or the unavailability of the Buyer Financing, the
Buyer shall pay to the Company a termination fee in an amount equal to such
expenses plus $2.0 million, in either case, in cash within 10 days after the
date on which the Agreement is terminated.
(c) If this Agreement is terminated by the Company under Section
9.1(g) hereof, the Company shall pay to the Buyer a termination fee in an amount
equal to the reasonable out-of-pocket expenses of the Buyer Parties related to
the Transactions plus $2.0 million, in cash within 10 days after the date on
which the Agreement is terminated. Such out-of-pocket expenses shall include any
fees, costs or other expenses related to the Buyer Financing other than the 1%
commitment fee with respect to the Bridge Financing to the extent that it
relates to financing of amounts greater than $60 million.
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(d) If this Agreement is terminated by the Buyer under Section 9.1(e)
as a result of the Company's breach, the Company shall pay to the Buyer a
termination fee in amount equal to the reasonable out-of-pocket expenses of the
Buyer Parties related to the Transactions. except that in the case of a
termination due to a breach existing on the date hereof that was known to exist
on the date hereof by either Company Party or a termination due to a wilful
breach by any Company Party, the Company shall pay to the Buyer a termination
fee in an amount equal to such expenses plus $2.0 million, in either case, in
cash within 10 days after the date on which the Agreement is terminated. Such
out-of-pocket expenses shall include any fees, costs or other expenses related
to the Buyer Financing other than the 1% commitment fee with respect to the
Bridge Financing to the extent that it relates to financing of amounts greater
than $60 million.
(e) The agreements contained in Sections 9.2(b), (c) and (d) are an
integral part of the Transactions and constitute liquidated damages and not a
penalty. If one party fails to promptly pay to the other any fee due under such
Sections 9.2(b), (c) or (d), the defaulting party shall pay the costs and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the Prime
Rate plus 200 basis points from the date such fee was required to be paid.
10. PUBLIC ANNOUNCEMENTS.
The Buyer and the Company will consult with each other before issuing any
press release or making any public statement with respect to this Agreement and
the Transactions and, except as may be required by applicable law or stock
exchange regulations, will not issue any such press release or make any such
public statement prior to such consultation.
11. GENERAL.
11.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
11.2 FURTHER ASSURANCES. The parties hereto shall execute and deliver any
and all documents and take such other actions as may be necessary to complete
the Transactions.
11.3 BINDING EFFECT. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement and all rights hereunder may not be assigned by any party hereto
without the written consent of the other parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person other than the Buyer
Parties and the Company Parties any rights or remedies of any nature whatsoever.
11.4 WAIVER OF CONDITIONS. Any party hereto may waive any condition
provided in this Agreement for its benefit.
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11.5 EXHIBITS. All of the Exhibits attached to this Agreement and the
Disclosure Schedule and any Revised Disclosure Schedule are hereby incorporated
herein and made a part hereof.
11.6 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the Transactions shall be paid by the party incurring such costs
and expenses.
11.7 ENTIRE AGREEMENT. This Agreement, the Prior Confidentiality
Agreement and the other Transaction Documents contain the entire agreement
among the parties hereto, and there are no agreements, representations or
warranties which are not set forth in such documents. All prior negotiations,
agreements and understandings are superseded hereby. This Agreement may not
be amended or revised except by a writing signed by all parties hereto.
11.8 NOTICES. Any notice, authorization, request or demand required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given on the earlier of the date when received at, or the fifth day
after the date when sent by registered or certified mail to, the respective
addresses or telecopy numbers specified for the parties below.
TO THE BUYER:
Astor Corporation
8521 Six Forks Road, Suite 105
Raleigh, North Carolina 27615
Attention: Boyd D. Wainscott
Chairman and Chief Executive Officer
Telecopy: 919-846-8283
With a copy to:
Aurora Capital Partners L.P.
Suite 1000
1880 Century Park East
Los Angeles, California 90067
Attention: Richard K. Roeder
Managing Director
Telecopy: 310-277-5591
and
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Bruce D. Meyer, Esquire
Telecopy: 213-229-7520
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TO THE COMPANY:
Adco Products, Inc.
4401 Page Avenue
Michigan Center, MI 49254
Attention: Charles E. Sax, President
Telecopy: 517-764-2550
With a copy to:
Robert J. Simon
Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, NY 10036
Telecopy: 212-764-3467
and
Thomas J. Sharbaugh, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopy: 215-963-5299
11.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above.
Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
11.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time except
for the representations, warranties and agreements set forth in Sections 2 or
11.
11.11 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto at any time prior to the filing of the
Certificate of Merger, and any such amendment shall be by a written instrument
signed by the parties hereto; provided, however, that this Agreement may only be
amended without approval of the stockholders of the Company and the Acquisition
Company to the extent permitted by applicable law.
11.12 INTERPRETATION.
Unless the context of this Agreement clearly requires otherwise, (a) "or"
has the inclusive meaning frequently identified with the phrase "and/or," (b)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (c) references to one gender include
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all genders. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Attest: ADCO TECHNOLOGIES INC.
/s/ David J. Fuchs By: /s/ Charles E. Sax
- ----------------------------------- -------------------------------
Attest: ASTOR CORPORATION
By:
- ----------------------------------- -------------------------------
Attest: AAC ACQUISITION CORP.
By:
- ----------------------------------- -------------------------------
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all genders. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Attest: ADCO TECHNOLOGIES INC.
By:
- ----------------------------------- -------------------------------
Attest: ASTOR CORPORATION
Illegible By: /s/ Boyd D. Wainscott
- ----------------------------------- -------------------------------
Attest: AAC ACQUISITION CORP.
Illegible By: /s/ Boyd D. Wainscott
- ----------------------------------- -------------------------------
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Disclosure Schedule
to Agreement and Plan of Merger
dated as of July 12, 1996
by and between Astor Corporation,
AAC Acquisition Corporation and
Adco Technologies Inc. (the "Agreement")
Capitalized terms used but not otherwise defined in the Disclosure Schedule
have the meanings ascribed to such terms in the Agreement.
In no event shall the listing of agreements or other matters in the
Disclosure Schedule be deemed or interpreted to broaden or otherwise amplify the
Company's representations and warranties or covenants contained in the
Agreement, and nothing in the Disclosure Schedule shall influence the
construction or interpretation of any of the representations and warranties and
covenants contained in the Agreement. The headings contained in the Disclosure
Schedule are for convenience of reference only and shall not be deemed to modify
or influence the interpretation of the information contained in the Disclosure
Schedule and shall not be taken as an admission by the Company that such
disclosure is required to be made under the terms of any at such representations
and warranties or covenants.
All disclosures in the Disclosure Schedule made against representations and
warranties in the Agreement are made generally, and any such disclosure
contained in any particular section shall be deemed to be Included In any other
applicable section. Accordingly, any numbering or references herein to Sections
of the Agreement are for convenience only and do not in any way limit, and shall
not be regarded as limiting, the disclosure concerning such numbered or referred
to Sections.
<PAGE>
* COMPANY PARTIES:
Adco Technologies Inc. (ATI) incorporated in Delaware.
Adco Products, Inc. (Adco) incorporated In Michigan.
* DIRECTORS OF ATI AND ADCO ARE:
R. J. Simon, Chairman of the Board
C. E. Sax
D. P. Kollock
T. L. Ferguson
L. R. Miskowski
S. S. Preston
* OFFICERS OF ATI ARE:
R. J. Simon, Chairman of the Board
C. E. Sax, President
T. L. Ferguson, Vice President and Treasurer
D. J. Fuchs, Secretary
T. J. Sharbaugh, Assistant Secretary
* OFFICERS OF ADCO ARE:
R. J. Simon, Chairman of the Board
C. E. Sax, President and Chief Executive Officer
P. D. Beery, Executive Vice President
B. J. Briddell, Vice President, Research & Development
D. J. Fuchs, Vice President, Chief Financial Officer, Secretary, and
Treasurer
J. R. McCowan, Vice President, Operations
T. J. Sharbaugh, Assistant Secretary
* Adco is registered to do business as a foreign corporation in:
Pennsylvania
Ohio
Texas
New Jersey
The consummation of the Transactions will terminate the indemnification
protection that the Company currently has from Nalco Chemical Company except as
set forth in Article X of the Agreement and Plan of Merger among Nalco Chemical
Company, the Company Parties, and a related company, dated May 14, 1993. This
termination could adversely affect claims for indemnification that are noted
below in this Disclosure Schedule and could impose dollar limitations on other
claims for indemnification also noted below.
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The following is a list of options outstanding:
Exercise Date of
Name Options Price Grant
- ----------------------------------------------------------------------------
Sax 48,106 2.08 2/15/95
15,000 7.00 12/15/94
10,000 7.625 4/25/95
5,000 6.75 3/14/96
Beery 24,053 2.08 2/15/95
10,000 7.00 12/15/94
10,000 7.625 4/25/95
5,000 6.75 3/14/96
Briddell 24,053 2.08 2/15/95
10,000 7.00 12/15/94
10,000 7.625 4/25/95
5,000 6.75 3/14/96
Fuchs 24,053 2.08 2/15/95
10,000 7.625 4/25/95
5,000 6.75 3/14/96
McCowan 24,053 2.08 2/15/95
10,000 7.00 12/15/94
10,000 7.625 4/25/95
5,000 6.75 3/14/96
Buckhannon 250 6.75 3/14/96
Bytnar 375 6.75 3/14/96
Curfman 250 6.75 3/14/96
Dykstra 350 6.75 3/14/96
Fisher 375 6.75 3/14/96
Janitz 375 6.75 3/14/96
Kapuga 375 6.75 3/14/96
Kurtz, D. 250 6.75 3/14/96
Kurtz, J. 250 6.75 3/14/96
Lamb 375 6.75 3/14/96
Lohman 350 6.75 3/14/96
Mantek 350 6.75 3/14/96
O'Connell 350 6.75 3/14/96
Olgac 375 6.75 3/14/96
Reel 350 6.75 3/14/96
----------
Total 269,318
----------
Ferguson, T. 4,000 7.00 12/15/94
Kollock, D. 4,000 7.00 12/15/94
Miskowski, L. 4,000 7.00 12/15/94
Preston, S. 4,000 7.00 12/15/94
Simon, R. 4,000 7.00 12/15/94
Parker, H. * 4,000 7.00 12/15/94
----------
Total 24,000
----------
Grand Total 293,318
----------
----------
* ex-director
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* As of March 31, 1996, the following were contingent liabilities of the
Company:
1. H.E.R. OF TUPELO VS. INTERNATIONAL E.P.D.M.
Adco has been named as a possible defendant in a lawsuit between the above
referenced companies. H.E.R. claims that there were defects in the roofing
system installed by International. As Adco is one of three companies that
supplied material to International for this job, International is claiming
that if the plaintiff proves defective material, then the suppliers are
responsible. In addition, International wants to tender defense of
International to the three material suppliers. We have received no
correspondence since June 4, 1992.
2. SUNSHINE SUPPLY COMPANY, INC.
Adco sold a sealant used in dual glass installation to Sunshine Supply
Co. who in turn sold it to A & A Glass Co. A & A Glass alleges that in
March, 1990 the seal on one of the "dual units" was going bad due to
failure of the Adco material. They submitted a claim of $1,745 to
Sunshine for material and labor to replace the unit. Sunshine in turn
passed the bill to Adco to pay. We agreed to make the payment if they
would sign a release document, which they refused to do. Nothing
further has transpired to date. The last correspondence was December 7,
1992.
3. FRONTIER CHEMICAL SUPERFUND SITE
Adco has been notified that some of our material has been deposited in a
former waste processing/management facility in Niagara Falls, New York,
which has been named as a Superfund site by the EPA. We have small
amounts of our material there in drums (one 55 gl. and one 30 gl. drum)
and some liquids in storage tanks. Adco has been included in a de
minimis settlement with the EPA regarding the storage tank clean-up.
Our cost for the de minimis clean-up of the storage tank was
approximately $4,000. We are responsible for the actual costs of
disposing of the material in the drums. The projected cost of the drum
disposal to-date is approximately $4,500, which has already been paid.
4. JACKSON DROP FORGE SITE, JACKSON, MI
Adco has been notified by the U.S. EPA of possible environmental
contaminants at the above mentioned site. There apparently is some
asphaltic material at the site from the owners of our facility prior to
Adco's start-up in 1971. In July 1994 Adco notified the EPA that we have
no recollection, and our records do not indicate, that Adco ever sent any
material of any kind to the mentioned site. We have not since received a
reply from the EPA. Clean-up work is well underway at the site, and other
companies have been contributing to the cost of the clean-up. Butzel,
Long is representing Adco in this manner. Nalco has been notified of a
possible claim for indemnification as a result of this matter.
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5. ADCO NAMED AS A SITE OF ENVIRONMENTAL CONTAMINATION
Adco has been notified by the Michigan Department of Natural Resources that
our site has been named as a site of environmental contamination. Adco has
in turn notified Nalco of a possible claim for indemnification as a result
of this matter. We are currently working with McNamee, Porter and Seeley
to determine the source and extent of the contamination. The legal firm of
Butzel, Long is assisting Adco in its negotiations with the DNR regarding
the work which will be required, if any, at the site, as well as whether
Adco will receive any state moneys towards the clean-up.
6. RAGLE AND COMPANY VS INTERNATIONAL EPDM
In July, 1995 Adco was been named as a third-party defendant in a claim
brought by John Ragle, John Ragle and Ragle and Company, Inc. against
International EPDM regarding a faulty roof installed by International on
which there were some Adco products. We have notified our insurance
carrier of the third-party complaint. The insurance carrier will
coordinate legal defense. Nothing further has transpired since the
initial complaint.
7. INSULFOAM ROOF CLAIM
In January, 1994 Adco was notified by attorneys representing InsulFoam that
Adco seam tape use on their roof was failing and requested payment of
approximately $30,000 to repair the roof. Adco responded that we had
inspected the roof and found the tapes were not failing. Adco has not
received any further correspondence from InsulFoam or their legal counsel.
8. HOMOSSASSA SPRINGS POST OFFICE VS. INTERNATIONAL EPDM
In February, 1993, Adco was notified by International EPDM that a white
EPDM roof installed by International on a U.S. Post Office was failing.
After examination of the roof it was determined that the white EPDM roofing
sheets manufactured by Colonial were deteriorating. International has
asked both Adco and Colonial Rubber Works to pay for the repair of the
roof. It is Adco's belief that the failure of the white EPDM roofing
sheets was the cause of the roofing failure. Nalco has been notified of a
potential claim for indemnification for this matter. Morgan, Lewis is
representing Adco in this matter.
9. JUDE PROPERTY
Drums from Adco were buried by Mr. Jude in a sandstone quarry on Napoleon,
Michigan property. The company is not aware of any claim regarding this
property, and no public disclosure has been made regarding this matter.
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10. INTERNATIONAL EPDM CLAIM FOR CREDITS
Since approximately 1993 International has been sending Adco credit memos
for repair and warranty work for claims they allege have incurred for
repairing roofs they have installed over the years using Adco tapes. Adco
has occasionally paid some claims and made some repairs on certain roofs
installed by International. On credits submitted by International which
were rejected by Adco for payment, International has accumulated the
credits and invoices Adco monthly for these claims. Adco has not made any
payments on any credits included in the invoice because it believes Adco
material was not at fault and that the roofs leak for various other
reasons, such as installation problems or deteriorating EPDM sheet. Also
has notified Nalco of a potential claim for indemnification in this matter,
and is being represented by Morgan, Lewis & Bockius.
11. ABARCA, ALONZO ET AL VS. ADCO PRODUCTS, INC. ET AL
Adco has been named as a defendant, along with 92 other companies (such
as 3M, Dow, HB Fuller, Occidental, DuPont etc.) by a group of defendants
in Texas. The suit involves alleged serious injuries, death, property
and other damages to the Plaintiffs or their decedents, arising out of
the ingestion, breathing, inhalation and other exposures to solvent
products that were manufactured, formulated, marketed, sold and/or
distributed in Nueces County, Texas. The plaintiffs allege that they
were exposed to these chemicals in the course of their work at the
Corpus Christi Army Depot and elsewhere in Nueces County, Texas where
they were disassembling, cleaning, maintaining, overhauling and storing
aircraft and other equipment. The Adco product involved appears to be
black lap sealant. The plaintiffs are suing for $500 million. We are
working with Morgan, Lewis and our insurance company.
12. PANNELL V. ADCO PRODUCTS, INC.
Adco has been named as a defendant where an installer of windshields
claims to have received an injury to his eye when a tube of Adco FC-2000
SS urethane adhesive "exploded" while he was installing a windshield.
Mr. Pannell is seeking damages for the injury and impairment to his eye,
medical expenses paid and yet to be paid, pain and suffering from the
injury and any wages lost as a result of the claimed injury. Our
insurance company has been notified of the claim and is representing us
in this matter. This falls under the product liability coverage of our
insurance with a $50,000 deductible.
S-5
<PAGE>
13. AMERICAN MARBLE
American Marble is a contractor that bought Adco AL-800 from Sunshine
Supply Company, which is an Adco distributor of the product. American
Marble used this product as an adhesive for marble countertops and
backsplashes installed in residential homes. The product caused staining
on the marble, and American Marble is seeking damages. Adco AL-800 was not
manufactured for, nor was it ever recommended to be used for, a marble
adhesive. The intended use of the product is as a sealant. The insurance
company has been put on notice and has hired a legal defense counsel.
14. POTENTIAL LABOR RELATED CLAIMS
The Company is aware of potential labor related claims regarding the
following employees:
a. Anthony Jackson
b. Thomas Acker
c. Delores Morano
* The 1995 state and federal tax return filing deadlines have been extended to
September 30, 1996. This has been prior company practice and is in the
ordinary course of business.
* Adco has filed for a potential refund of Michigan single business taxes paid
going back to 1991 under a ruling call "Guardian". If the state rules
favorably, Adco could receive a refund of up to approximately $80,000.
The company has entered into a tax sharing agreement with Nalco Chemical
Company dated January 31, 1994 regarding this refund.
* A legal description of the company's real property is attached hereto as
Appendix 1.
* The Company is a party to the following contracts which may limit or restrain
the company from competing or selling its products to certain markets:
1. A licensing contract with Vaber that gives Vaber exclusive rights to
manufacture, use and sell Adco products IGS-1 and IGS-3 in Italy.
2. An export agreement with R. Robb which gives R. Robb exclusive rights to
export certain of Adco's products to certain countries. Notice of
termination has been given so that the agreement will terminate
November 1, 1996.
S-6
<PAGE>
* Estimate of expense to be incurred are as follows:
Schroder Wertheim & Co.:
fees $825,000
cost reimbursement 35,000
legal fees 10,000
--------
$870,000
Morgan, Lewis & Bockius $150,000
Ernst & Young $10,000
Printing and mailing $15,000
SEC filing fee $12,000
* The Company is a party to the following labor grievances:
1. A grievance dated June 6, 1996 regarding responsibility and duties
of maintenance employees assigned to the extruding, mixing and
urethane departments.
2. A grievance dated April 24, 1996 related to unpaid leave and the
Family and Medical Leave Act.
* The following is a list of all employment agreements:
1. The Company has Change in Control Agreements, dated February 13,
1996 with the following individuals:
a. P.D. Beery
b. B.J. Briddell
c. D.J. Fuchs
d. J.R. McCowan
2. The Company has an employment agreement with P.D. Beery dated May
14, 1993.
* The Company has a deferred pension payment agreement with B.J. Briddell
dated November 30, 1993.
* The Company has a deferred compensation agreement with C.E. Sax
S-7
<PAGE>
* The following is a list of all Company benefit plans:
1. Adco Products, Inc. Union Employees Pension Plan
2. Adco Products, Inc. Retirement Savings Plan
3. Adco Products, Inc. Union Employees Retirement Savings Plan
4. Medical Benefits (Physicians Health Plan)
5. Long-Term Disability
6. Short-Term Disability
7. Accidental Death & Dismemberment
8. Life Insurance Plan
9. Flexible Spending Plan
10. Dental Plan
11. 1993 Stock Option Plan
12. 1994 Stock Option Plan
13. 1994 Non-Employee Director Stock Option Plan.
* The Company is delinquent in filing Form 990 with the IRS in regards to
the companies medical plan for the year ended December 31, 1993.
* Attached as Appendix 2 is a list of all Company patents.
* Since the balance sheet date, the Company has entered into a contract
with Exxon Chemical Company to purchase 2 million pounds of butyl
rubber.
S-8
<PAGE>
Appendix 1
A. LEGAL DESCRIPTION
Commencing at the North 1/2 corner of Section 8, Town 3 South, Range 1 East,
Leoni Township, Jackson County, Michigan, thence along the North and South
1/2 line of said Section. South 0DEG.25' East 249.85 feet for a place of
beginning, thence along the South line of the Michigan Central Railroad
right-of-way, South 86DEG.03' East 1462.50 feet, thence due South 1008.02
feet, thence North 88DEG.51' West 1451.31 feet, thence along the North and
South 1/4 line of said Section. North 0DEG.25' West 1079.77 feet to the place
of beginning, being a part of the Northeast 1/2 of Section 8, Town 3 South,
Range 1 East.
Together with an easement for ingress and egress over the following described
property:
Land described as commencing at the South 1/2 corner of Section 5, Town 3
South, Range 1 East, Jackson County, Michigan, thence along the South line of
said Section 5, South 89DEG.09' East 737.97 feet, thence North 1DEG.35' East
556.12 feet to the center line of Page Avenue to the place of beginning of
this description, thence South 1DEG.35' West 745.18 feet to the North line of
Michigan Central Railroad right-of-way; thence South 86DEG.03' East 50 feet,
thence North 1DEG.35' East parallel with the first described course to the
centerline of Page Avenue, thence Northwesterly along the centerline of Page
Avenue to the place of the beginning.
ALSO
Legal Description of Alternate Easement of Ingress and Egress:
Being a part of the North 1/2 of the Northeast 1/2 of Section 8, Town 3
South, Range 1 East, Leoni Township, Jackson County, Michigan. More
particularly described as:
Beginning at a point distant, on the South right-of-way line of the Con-rail
Railroad, South 00DEG.04'18" West 249.63 feet and South 85DEG.38'14" East
1463.61 feet from the North 1/2 Post of said section; thence South
85DEG.38'14" East, along said railroad right-of-way, 885.58 feet; South
38DEG.36'30" East 97.86 feet; South 88DEG.44'59" East, parallel with the
North line of the Northeast 1/2 210.03 feet to the East line of the Northeast
1/2 (said point being 452.32 feet South of the Northeast Corner of the
Northeast 1/2); South 00DEG.16'49" West, along the East line of the Northeast
1/2 20.00 feet; North 88DEG.44'59" West, parallel with the North line of the
Northeast 1/2, 217.46 feet; North 38DEG.36'30" West 98.34 feet; North
85DEG.38'14" West, parallel with the South right-of-way line of the Con-rail
Railroad, 877.82 feet; North 00DEG.16'49" East, parallel with the East line
of the Northeast 1/2 20.05 feet to a 1 inch pipe at the point of beginning.
Beginning at the Northeast corner of Section 8, thence South 00DEG.16'49"
West 445.97 feet to a point for the place of beginning of this description,
thence continuing South 00DEG.16'49" West 26 feet, thence North 89DEG.43'11"
West 300 feet, thence South 00DEG.16'49" West 74.80 feet, thence North
89DEG.43'11" West (N89DEG.52'20" W Record) 227.92 feet, thence South
00DEG.16'49" West 319.30 feet, thence North 88DEG.44'59" West 626.93 feet,
thence North 00DEG.16'49" East 545.90 feet to the South line of the Michigan
Central Railroad right-of-way, thence South 85DEG.38'14" East (S84DEG.45' E
Record) 957.20 feet, thence South 89DEG.43'11" East 200 feet to the place of
beginning being a part of Section 8, Town 3 South, Range 1 East.
A-1
<PAGE>
Appendix 1
[PLOT PLAN]
<PAGE>
Appendix 2
World Wide Patents
Listing at 11-28-94
ARGENTINA Room Temperature Based Adhesion Composition and Method
# 316482
AUSTRALIA A One Component Sealant Composition
AUSTRALIA Polyurethane based adhesion composition and method
77329/91
CANADA Primerless Windshield Sealant Composition & Method
Application # 2010821-5
CANADA Fast-Cure polyurethane Sealant Composition containing
Patent # 1 330 846 Titanium Ester Accelerations
CANADA Fast-Cure polyurethane Sealant Composition containing
Patent # 608781-7 silyl-substituted piperazine accelerators
EUROPE Fast-cure polyurethane sealant composition containing
# 89117261.1 silyl-substituted guanidine accelerators
Designated to: Austria, Belgium, Switzerland, Germany, Spain, France,
Great Britain, Greece, Italy, Lichtenstein,
Luxembourg, Netherlands, Sweden
EUROPE Fast-cure polyurethane sealant composition
# 89113489.2 containing silyl-substituted piperazine accelerators
Designated to: Austria, Belgium, Switzerland, Germany, Spain, France,
Great Britain, Greece, Italy, Lichtenstein,
Luxembourg, Netherlands, Sweden
EUROPE Fast-cure polyurethane sealant composition
# 89113307.6 titanium ester accelerators
Designated to: Austria, Belgium, Switzerland, Germany, Spain, France,
Great Britain, Greece, Italy, Lichtenstein,
Luxembourg, Netherlands, Sweden
EUROPE Polymerization of acrylic ester pressure-sensitive
# 90121058.3 adhesive compositions
Designated to: Belgium, Germany, France, Great Britain, Italy, Sweden
EUROPE Room temperature moisture-curable primerless
#90106048.3 polyurethane-based adhesive composition and method
Designated to: Belgium, Germany, France, Great Britain, Spain, Italy,
Netherlands, Sweden
<PAGE>
Appendix 2
U.S. ADCO PATENTS
LIST AT 11-28-94
Title Patent Date of Inventor
Number Patent Assignee
Tire Tread Adhesives 4,497,927 2-5-85 Wun T. Tai,
K. Phillips
Nalco/Assign
Sealant Primer Composition Method 4,882,003 11-21-89 B. Bugg,
G. Martin,
D. Oberg,
A. Ticu
BASF/Assign
Fast-Cure Polyurethane Sealant
Composition containing Titanium
Ester Accelerators 4,889,903 12-26-89 J. Baghdachi
BASF/Assign
Fast-Cure Polyurethane Sealant
Composition containing silyl-
substituted piperazine accelerators 4,864,426 1-16-90 J. Baghdachi
K. Mahoney
BASF/Assign
Translucent Pressure-Sensitive
Adhesive Systems 4,931,347 6-5-90 M. Slovinsky
J. Tarizzo
Nalco/Assign
Fast-Cure Polyurethane Sealant
Composition containing silyl-
substituted Guanidine accelerators 4,954,598 9-4-90 J. Baghdachi
K. Mahoney
BASF/Assign
Ultraviolet Radiation
Photopolymerization of acrylic
ester pressure sensitive
adhesive formulation 4,968,558 11-6-90 D. Fisher
B. Briddell
Nalco/Assign
Caulking Gun Nozzle 5,000,361 3-19-91 B. Briddell
P. Beery
Adco/Assign
Fast-cure polyurethane sealant
composition containing silyl-
substituted guanidine accelerators 5,097,053 3-17-92 J. Baghdachi
K. Mahoney
BASF/Assign
<PAGE>
Appendix 2
Page 2 - U.S. patents at 11-28-94
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Room temperature moisture -curable
primerless polyurethane based
adhesive composition and method 5,147,927 9-15-92 J. Baghdachi
K. Mahoney
G. Martin
BASF/Assign
Ultraviolet Radiation
Photopolymerization of Acrylic
Ester pressure sensitive adhesive
formulation 5,183,833 2-2-93 D. Fisher
B. Briddell
Adco/Assign
Polymer Adhesive Composition 5,225,512 7-6-93 J. Baghdachi
K. Mahoney
BASF/Assign
Solvent-Based Adhesive composition
for roofing membranes 5,234,987 8-10-93 M. Hubbard
B. Briddell
D. Fisher
Adco/Assign
Adhesive Composition and Method
of providing water-tight joints
in single-ply roofing membranes 5,242,727 9-7-93 B. Briddell
M. Hubbard
Adco/Assign
Polyurethane based adhesion
composition and method 5,272,224 12-21-93 J. Baghdachi
K. Mahoney
Adco/Assign
Fortified Pressure Sensitive Adhesive 5,354,600 10-11-94 D. Fisher
B. Briddell
S. Eder
Adco/Assign
Polyurethane Black Copolymer 5,368,943 11-29-94 Jamil Baehdacki
Chery Van Valkenberg
Pressure Sensitive Adhesive Systems
with Filler 5,385,772 1-31-95 M. Slovinsky
J. Tarizzo
D. Fisher
B. Briddell
Pressure Sensitive Adhesive System
with Filler 5,527,595 6-18-96 M. Slovinsky
J. Tarizzo
</TABLE>
<PAGE>
Page 2 - Worldwide Patents at 11-28-94
EUROPE Polyurethane based adhesion composition and method
#91108380.6
Designated to: Belgium, Germany, France, Great Britain, Spain, Italy,
Netherlands, Sweden
JAPAN Silane containing polyurethane polymer and adhesive
#US92/06807 composition
Application Numbers:
273646/89
202265/89
212873/89
084746/90
155711/91
KOREA
#014671/89 Fast-cure polyurethane sealant composition containing silyl-
substituted guanidine accelerators
#11089/89 Fast-cure polyurethane sealant compositions containing
titanium ester accelerators
#11892/89 Fast-cure polyurethane sealant compositions containing
silyl-substituted piperazine accelerators
#4245/90 Room temperature, moisture-curable, primerless,
polyurethane based adhesive composition and method.
/91 Polyurethane based adhesion composition and method
MEXICO
#182404 No description listed
NEW ZEALAND Room-temperature, moisture-curable primerless, polyurethane-
#233025 based adhesive composition and method
PHILIPPINES
Application Numbers
40866 and 42493 No description listed.
<PAGE>
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (the "First Amendment") is
made as of March 1, 1997 by and between David E. Hawkins, an individual
("Executive"), and Astor Corporation (formerly, Petrowax PA, Inc.), a
Delaware corporation (the "Company").
Executive and the Company are parties to that certain Employment
Agreement (the "Agreement") dated July 1, 1995, and Executive and the Company
desire to amend the Agreement as set forth herein.
For and in consideration of the mutual covenants and promises contained
herein, Executive and the Company do hereby amend the Agreement as follows.
1. Paragraph 1(d) of the Agreement is hereby amended to read in its
entirety as follows:
"(d) TERM. The initial term of employment of Executive under
this Agreement shall continue until July 1, 1998 (such period, the
"Initial Term"), subject to the provisions for termination set forth
herein and renewal as provided in paragraph 1(e) below."
2. The first sentence of paragraph 2(a) of the Agreement is hereby
amended by deleting "Eleven Thousand Six Hundred Sixty-Seven Dollars
($11,667)" and by substituting therefor "Thirteen Thousand Five Hundred
Dollars ($13,500)."
3. The first sentence of paragraph 3(b) of the Agreement is hereby
amended by deleting "40%" and by substituting therefor "50%".
4. The definition of "Termination Date" in the first sentence of
paragraph 5 is amended in its entirety to read as follows:
"The date on which Executive's employment by the Company
ceases upon non-renewal at the election of the Company in
accordance with paragraph 1 (e), or under any of the
following circumstances, shall be defined herein as the
Termination Date'."
5. Paragraph 5(d) (i) of the Agreement is hereby amended in its
entirety to read as follows:
"(d) TERMINATION WITHOUT CAUSE.
1
<PAGE>
(i) TERMINATION PAYMENTS. In the event that during the term of
this Agreement (A) Executive's employment is terminated by the Company
other than pursuant to paragraph 5(a) or 5(c), (B) Executive's
employment is terminated by Executive pursuant to paragraph 5(b), or (C)
the Company elects not to renew this Agreement in accordance with
paragraph 1(e), then the Company shall pay Executive as severance an
amount equal to twelve (12) months of his then Base Salary, less
standard withholdings for tax and social security purposes, payable over
such twelve (12) month term in monthly pro rata payments commencing as
of the Termination Date plus the accrued portion of any bonus through
the Termination Date, less standard withholdings for tax and social
security purposes, payable upon such date or over such period of time
which is in accordance with the applicable bonus plan."
6. Paragraph 5(g) of the Agreement is hereby amended to read in its
entirety as follows:
"(g) OUTPLACEMENT SERVICES. Upon any termination of Executive's
employment pursuant to paragraph 5 (c) or 5(d), or upon non-renewal at the
election of the Company in accordance with paragraph 1(e), the Company shall
provide to Executive such outplacement services as may be mutually agreed to
from time to time between the Company and Executive."
7. Except as modified herein, all terms, conditions and covenants of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on the date first above written.
/s/ DAVID E. HAWKINS
_______________________________________
David E. Hawkins
ASTOR CORPORATION
/s/ BOYD D. WAINSCOTT
By: ______________________________
Boyd D. Wainscott
Chairman and Chief
Executive Officer
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of April 7, 1997 (this "AMENDMENT"), to
the Credit Agreement, dated as of October 8, 1996 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among Astor
Corporation, a Delaware corporation (the "BORROWER"), the several lenders from
time to time parties thereto (the "LENDERS") and The Chase Manhattan Bank, as
administrative agent for the Lenders thereunder (in such capacity, the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain Loans to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders amend, and
the Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. As used herein, terms defined in this
Amendment or in the Credit Agreement are used herein as so defined.
2. AMENDMENT OF SUBSECTION 1.1 (DEFINED TERMS). As used in
this Amendment, the following terms shall have the following meanings:
"ASTOR PURCHASING CARD PROGRAM": the Chase Visa Purchasing Card
Program established for the Borrower by Chase (USA), pursuant to which
Chase (USA) shall issue Chase Visa Purchasing Cards to employees and
other accounts of the Borrower, in an aggregate amount not to exceed
$500,000 (including, without limitation, purchases made in foreign
currencies and converted into U.S. dollars in accordance with the
Purchasing Card Agreement) at any one time outstanding, including,
principal, interest and fees and other charges payable in connection
therewith.
"CHASE (USA)": The Chase Manhattan Bank (USA).
"PURCHASING CARD AGREEMENT": the Chase Visa Purchasing Card
Agreement, dated as of February 5, 1997, between Chase (USA) and the
Borrower, relating to the Astor Purchasing Card Program.
3. ASTOR PURCHASING CARD PROGRAM COMMITMENTS AND OUTSTANDING
AMOUNTS. The parties hereto agree that of the Revolving Credit Commitment of
Chase (which is as of the date
<PAGE>
2
hereof in the aggregate principal amount of $6,000,000), $500,000 shall be
allocated to commitments of Chase (USA) (the "PURCHASING CARD COMMITMENTS"),
under, and in the form of amounts outstanding from time to time (the "PURCHASING
CARD AMOUNTS") pursuant to, the Astor Purchasing Card Program and shall be
maintained and extended by Chase (USA) on the terms set forth in the Purchasing
Card Agreement. Other than as set forth in this Amendment, the Purchasing Card
Commitments shall be treated for all purposes (including, without limitation,
with respect to the definition of Majority Lenders) as Revolving Credit
Commitments of Chase (USA) and the Purchasing Card Amounts shall be treated as
Revolving Credit Loans of Chase (USA) under the Credit Agreement and (i) any
mandatory reduction of the Revolving Credit Commitments pursuant to subsection
4.4 of the Credit Agreement and any mandatory prepayments of the Revolving
Credit Loans as a result thereof and (ii) any payments required to be made by
the Borrower pursuant to the terms of the Credit Agreement (without giving
effect to the Purchasing Card Agreement) upon the occurrence and during the
continuance of an Event of Default, in each case shall be applied PRO RATA to
the Revolving Credit Commitments and outstanding Revolving Credit Loans of each
Lender (it being understood that this shall include the Purchasing Card
Commitments and the Purchasing Card Amounts of Chase (USA)) in accordance with
the terms of the Credit Agreement (notwithstanding any conflicting provisions of
the Purchasing Card Agreement). Other than as expressly set forth in this
Amendment, the terms of the Purchasing Card Agreement, including, without
limitation Sections 9(b) and 9(c) thereof, shall apply to the Purchasing Card
Commitments and Purchasing Card Amounts and such terms shall, with respect to
such commitments and amounts, be incorporated by reference into, and treated as
an amendment to, the Credit Agreement, and Chase (USA) shall be treated as a
Lender with respect to such commitments and amounts. It is further understood
and agreed that (i) the interest rate payable with respect to the Purchasing
Card Amounts shall be as set forth in the Purchasing Card Agreement, (ii) any
suspension in the Revolving Credit Commitments pursuant to the terms of the
Credit Agreement, upon the occurrence of a Default or Event of Default or
otherwise shall suspend the Purchasing Card Commitments of Chase (USA), (iii) no
commitment fees shall be payable pursuant to subsection 4.1(a) of the Credit
Agreement on the portion of the Revolving Credit Commitment constituted by the
Purchasing Card Commitments, (iv) subject to paragraph 7 of this Amendment, the
amounts of any optional reductions of Revolving Credit Commitments or optional
prepayments of Revolving Credit Loans pursuant to subsections 4.2 or 4.3 of the
Credit Agreement shall be applied last to the Purchasing Card Commitments and
Purchasing Card Amounts, as the case may be and (v) at any time, the Borrowing
Base then available for extensions of new Revolving Credit Loans (other than the
Purchasing Card Amounts) shall be determined as if the full amount of the
Purchasing Card Commitments were then outstanding.
4. REVOLVING CREDIT COMMITMENTS AND REVOLVING CREDIT LOANS.
For the purposes of the amount of Revolving Credit Loans which may be extended
pursuant to Section 2 of the Credit
<PAGE>
3
Agreement (after giving effect to the allocation to Chase (USA) of $500,000 of
Revolving Credit Commitments pursuant to this Amendment and the Purchasing Card
Agreement), the Revolving Credit Commitments of Chase set forth on Schedule 1.1
of the Credit Agreement on the date hereof shall be treated as $5,500,000.
5. MODIFICATION OF SUBSECTION 4.10. Notwithstanding subsection
4.10 of the Credit Agreement to the contrary, neither Chase (USA) nor Chase (in
its capacity as Administrative Agent or Lender) shall be obligated to share any
payments with respect to the Astor Purchasing Card Program with any of the
Lenders and such payments shall not be made by the Borrower PRO RATA among the
Lenders.
6. PARI PASSU ON COLLATERAL. It is understood by the parties
hereto that the Purchasing Card Amounts owing to Chase (USA) shall be secured by
the Collateral on a PARI PASSU basis with the other Loans outstanding from time
to time under the Credit Agreement.
7. TERMINATION OF ASTOR PURCHASING CARD PROGRAM. Unless
otherwise agreed between the Borrower, Chase and Chase (USA), upon the
termination of the Credit Agreement, whether upon maturity of the Loans
thereunder or earlier termination thereof, the Astor Purchasing Card Program and
the Purchasing Card Agreement shall terminate and all amounts payable pursuant
to the Purchasing Card Agreement shall become immediately due and payable to
Chase (USA). It is further agreed that upon a termination of the Astor
Purchasing Card Program for a reason other than an Event of Default under the
Credit Agreement or a default under the Purchasing Card Agreement, so long as
all amounts then due and owing with respect to the Astor Purchasing Card Program
have been paid in full to Chase (USA), the amount of Chase's Revolving Credit
Commitment available for extensions of Revolving Credit Loans shall be restored
to $6,000,000 (less the principal amount of any Revolving Credit Loans or
Letters of Credit then outstanding and less any reductions (or plus any
increases) in the Revolving Credit Commitments after the date hereof) and shall
be made in accordance with the terms of the Credit Agreement as if this
Amendment had not been entered into. At such time, the commitment fees payable
pursuant to subsection 4.1(a) of the Credit Agreement and previously suspended
pursuant to paragraph 3 above shall be reinstated.
8. REPRESENTATIONS AND WARRANTIES. On and as of the date
hereof after giving effect to this Amendment, the Borrower hereby represents and
warrants to the Lenders that:
(a) Each of its representations and warranties contained in
Section 5 of the Credit Agreement or in any certificate, document or
financial or other statement furnished at any time under or in
connection therewith are true and correct in all material respects on
and as of such date as if made on and as of such date, except to the
extent that such representations and warranties specifically relate
<PAGE>
4
to an earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date; PROVIDED that the references to the Credit Agreement therein
shall be deemed to include this Amendment;
(b) No Default or Event of Default has occurred and is
continuing; and
(c) The obligations under the Purchasing Card Agreement
constitute "Senior Debt" as defined in the indenture relating to the
Subordinated Notes and shall be entitled to be secured by the
Collateral pursuant to the terms of the Security Documents without
violating the terms of the Subordinated Notes.
9. CONDITIONS PRECEDENT. This Amendment shall be effective
upon the satisfaction of the following conditions precedent:
(a) The Administrative Agent shall have received this Amendment
duly executed and delivered by the Borrower and each of the Lenders.
(b) The reasonable costs and expenses of the Administrative
Agent in connection with this Amendment, including without limitation,
legal fees and expenses, shall have been paid by the Borrower.
(c) The Administrative Agent shall have received, with a
counterpart for each Lender, the executed legal opinion of Gibson,
Dunn & Crutcher, counsel to the Borrower, dated the date hereof and in
form and substance satisfactory to the Administrative Agent.
(d) Chase (USA) shall have received a copy of the Purchasing
Card Agreement duly executed by the Borrower and all conditions
precedent to the effectiveness of the Purchasing Card Agreement shall
have been satisfied and the Borrower shall be in compliance with all
its agreements and obligations thereunder and all of its
representations and warranties thereunder shall be true and correct.
10. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
stated herein, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect. The amendments contained herein shall not
constitute an amendment of any other provision of the Credit Agreement or for
any purpose except as expressly set forth herein.
11. GOVERNING LAW; COUNTERPARTS. (a) THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) This Amendment may be executed in any number of
<PAGE>
5
counterparts, all of which counterparts, taken together, shall constitute one
and the same instrument.
<PAGE>
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
ASTOR CORPORATION
By:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as
a Lender
By:________________________________
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:________________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:_______________________________
Name:
Title:
<PAGE>
7
HELLER FINANCIAL, INC.
By:________________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:________________________________
Name:
Title:
<PAGE>
8
The undersigned understands and agrees to the contents of this Amendment and
authorizes and appoints The Chase Manhattan Bank ("CHASE") as its agent to take
any and all actions on its behalf in connection with the Credit Agreement (for
this purpose, not including the Purchasing Card Agreement) and agrees that any
action or authorization by Chase in its capacity as a Lender under the Credit
Agreement shall constitute an action or authorization by the undersigned in
connection with its interests under the Credit Agreement (for this purpose, not
including the Purchasing Card Agreement).
THE CHASE MANHATTAN BANK (USA)
By:________________________________
Name:
Title:
<PAGE>
Exh. 10.23
SECOND AMENDMENT
SECOND AMENDMENT, dated as of April 30, 1997 (this "AMENDMENT"),
to the Credit Agreement, dated as of October 8, 1996 (as amended by the First
Amendment dated as of March 21, 1997 and as may be further amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Astor
Corporation, a Delaware corporation (the "BORROWER"), the several lenders from
time to time parties thereto (the "LENDERS") and The Chase Manhattan Bank, as
administrative agent for the Lenders thereunder (in such capacity, the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain Loans to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders amend, and
the Lenders have agreed to amend, certain of the provisions of the Credit
Agreement, upon the terms and subject to the conditions set forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. (a) As used herein, terms defined in this
Amendment or in the Credit Agreement are used herein as so defined.
(b) There shall be added to subsection 1.1 of the Credit
Agreement in the appropriate alphabetical order the following new defined term:
" 'SECOND AMENDMENT': the Second Amendment, dated as of April
30, 1997, to this Agreement."
2. AMENDMENT TO SUBSECTION 8.4. Subsection 8.4 of the Credit
Agreement is hereby amended by (i) deleting the word "and" at the end of clause
(b) thereof, (ii) deleting the period at the end of clause (c) and substituting
in lieu thereof the following: "; and" and (iii) adding the following new clause
(d):
"(d) in conjunction with the transactions contemplated by
subsection 8.8(j), Rheochem, Inc. and Rheochem may be merged or
consolidated with or into the Borrower."
3. AMENDMENT TO SUBSECTION 8.7. Subsection 8.7 of the Credit
Agreement is hereby amended by deleting the number "$5,000,000" in each place in
which it appears and substituting in lieu thereof the number "$8,000,000".
4. AMENDMENT TO SUBSECTION 8.8(j). Subsection 8.8(j)
<PAGE>
2
of the Credit Agreement is hereby amended by (i) inserting a closed
parenthetical immediately prior to the comma but after the other closed
parenthetical in the sixth line thereof, (ii) deleting the closed parenthetical
in the last line thereof and (iii) deleting the language immediately prior to
the proviso and substituting in lieu thereof the following:
"investments by the Borrower to purchase 100% of the Voting Stock of
Rheochem, Inc. for an aggregate purchase price not to exceed
$14,100,000 (subject to customary purchase price adjustments), in form
and substance satisfactory to the Administrative Agent (the "RHEOCHEM
ACQUISITION")"
5. REPRESENTATIONS AND WARRANTIES. On and as of the date
hereof after giving effect to this Amendment, the Borrower hereby represents and
warrants to the Lenders that:
(a) Each of its representations and warranties contained in
Section 5 of the Credit Agreement or in any certificate, document or
financial or other statement furnished at any time under or in
connection therewith are true and correct in all material respects on
and as of such date as if made on and as of such date, except to the
extent that such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date; PROVIDED that the references to the Credit Agreement therein
shall be deemed to include this Amendment; and
(b) No Default or Event of Default has occurred and is
continuing.
6. CONDITIONS PRECEDENT. This Amendment shall be effective
upon the satisfaction of the following conditions precedent:
(a) The Administrative Agent shall have received this Amendment
duly executed and delivered by the Borrower and each of the Lenders.
(b) The Administrative Agent shall have received duly executed
corporate resolutions of the Borrower authorizing this Amendment and
the transactions contemplated hereby.
(c) The reasonable costs and expenses of the Administrative
Agent in connection with this Amendment, including without limitation,
legal fees and expenses, shall have been paid by the Borrower.
(d) The Rheochem Acquisition shall have been consummated in
compliance with subsection 8.8(j) of the Credit Agreement as amended
by this Amendment, including, without limitation, the receipt by the
Administrative Agent of the certificate referred to therein.
<PAGE>
3
(e) The Administrative Agent shall have received, with a
counterpart for each Lender, the executed legal opinion of Gibson,
Dunn & Crutcher, counsel to the Borrower, dated the date hereof and in
form and substance satisfactory to the Administrative Agent,
including, without limitation, opinions that the Rheochem Acquisition
does not violate the terms of the Indenture dated as of October 8,
1996 among the Borrower, Astor Holdings II, as Guarantor, and State
Street Bank and Trust Company, as Trustee (the "INDENTURE").
7. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
stated herein, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect. The amendments contained herein shall not
constitute an amendment of any other provision of the Credit Agreement or for
any purpose except as expressly set forth herein.
8. GOVERNING LAW; COUNTERPARTS. (a) THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) This Amendment may be executed in any number of
counterparts, all of which counterparts, taken together, shall constitute one
and the same instrument.
<PAGE>
4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
ASTOR CORPORATION
By:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as
a Lender
By:________________________________
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:________________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:________________________________
Name:
Title:
<PAGE>
5
HELLER FINANCIAL, INC.
By:________________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:________________________________
Name:
Title:
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of _____________ ___, 1997,
is made by and between Astor Holdings, Inc., a Delaware corporation (the
"Corporation"), and [FirstName] [LastName], whose name, address and
position at the Corporation and/or any of the direct or indirect subsidiaries
of the Corporation appear on the signature page hereto ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as, or is assuming the position
of, a director and/or officer of the Corporation and/or, at the Corporation's
request, a director, officer, employee and/or agent of another corporation,
partnership, joint venture, trust or other enterprise, and the Corporation
wishes Indemnitee to continue in such capacity(ies);
B. The Corporation and Indemnitee recognize that the present state
of the law is too uncertain to provide the Corporation's directors and officers
with adequate and reliable advance knowledge or guidance with respect to the
legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Corporation;
C. The Certificate of Incorporation (the "Articles") and the Bylaws
(the "Bylaws") of the Corporation each provide that the Corporation may
indemnify, to the fullest extent permitted by law, certain persons, including
directors, officers, employees or agents of the Corporation, against specified
expenses and losses arising out of certain threatened, pending or completed
actions, suits or proceedings;
D. Section 145(f) of the Delaware General Corporation Law (the
"DGCL") expressly recognizes that the indemnification provided by the other
subsections of Section 145 of the DGCL shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office;
E. Indemnitee has indicated that he may not be willing to serve, or
continue to serve, as a director and/or officer of the Corporation and/or, at
the Corporation's request, as a director, officer, employee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise in
the absence of an indemnification agreement of the Corporation;
F. The Board of Directors of the Corporation has concluded that, to
retain and attract talented and experienced individuals to serve as directors
and officers of the Corporation and to encourage such individuals to take the
business risks necessary for the success of the Corporation, it is necessary
for the Corporation to contractually indemnify them, and to assume for itself
liability for expenses and damages in connection with claims against them in
connection with their service to the Corporation, and has further concluded
that the failure to provide such contractual indemnification could result in
great harm to the Corporation and its stockholders.
<PAGE>
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as follows:
1. DEFINITIONS.
(a) "Expenses" means, for the purposes of this Agreement, all direct
and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with the investigation, preparation, defense or appeal
of a Proceeding; PROVIDED, HOWEVER, that Expenses shall not include judgments,
fines, penalties or amounts paid in settlement of a Proceeding unless such
matters may be indemnified under applicable provisions of the DGCL.
(b) "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation) in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason
of any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director and/or officer of the foreign or domestic
corporation which was a predecessor corporation to the Corporation or of
another enterprise at the request of such predecessor corporation, whether or
not he is serving in such capacity at the time any liability or expense is
incurred forwhich indemnification or reimbursement can be provided under this
Agreement.
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. To the fullest extent permitted by law,
the Corporation shall indemnify Indemnitee against Expenses and liabilities
of any type whatsoever (including, but not limited to, judgments, fines,
penalties,and amounts paid in settlement (if the settlement is approved in
advance by the Corporation)) actually and reasonably incurred by Indemnitee
in connection with a Proceeding (other than a Proceeding by or in the right
of the Corporation) if Indemnitee acted in good faith and in a manner
Indemnitee 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 Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself, create a presumption that Indemnitee did not act in good faith and
in a manner that Indemnitee reasonably believed to be in, or not opposed to,
the best interests of the Corporation, or, with respect to any criminal
Proceeding, had reasonable cause to believe that Indemnitee's conduct was
unlawful. Notwithstanding the foregoing, no indemnification shall be made in
any criminal proceeding where Indemnitee has been adjudged guilty unless a
disinterested majority of the directors determines that Indemnitee did not
receive, participate in or share in any pecuniary benefit to the detriment of
the Corporation and, in view of all the circumstances of the case, Indemnitee
is fairly and reasonably entitled to indemnity for Expenses or liabilities.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. To the fullest
extent permitted by law, the Corporation shall indemnify Indemnitee against
<PAGE>
Expenses actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of a Proceeding by or in the right of the
Corporation to procure a judgment in its favor if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in, or not opposed
to, the best interests of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation in
the performance of Indemnitee's duty to the Corporation unless and only to
the extent that the court in which such Proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for Expenses
and then only to the extent that the court shall determine.
(c) SCOPE. Notwithstanding any other provision of this Agreement
other than Sections 3 and 13, the Corporation shall indemnify Indemnitee to
the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by other provisions of this
Agreement, the Articles, the Bylaws or statute.
3. LIMITATIONS ON INDEMNIFICATION. Any other provision herein to the
contrary notwithstanding, the Corporation shall not be obligated pursuant to
the terms of this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability under
Section 102(b)(7) of the DGCL; or
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance Expenses
to Indemnitee with respect to Proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the DGCL, but such indemnification or advancement of Expenses
may be provided by the Corporation in specific cases if a majority of the
disinterested directors has approved the initiation or bringing of such suit;
or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) INSURED CLAIMS. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) which have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy
of directors' and officers' liability insurance maintained by the Corporation
or any other policy of insurance maintained by the Corporation or Indemnitee;
or
(e) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for Expenses
and the payment of profits arising from the purchase and sale by Indemnitee
of securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Upon receipt of a
written claim addressed to the Board of Directors for indemnification
pursuant to Section 2 of this Agreement, the Corporation shall determine by
any of the methods set forth in Section 145(d) of the DGCL whether Indemnitee
<PAGE>
has met the applicable standards of conduct that make it permissible under
applicable law to indemnify Indemnitee. If a claim under Section 2 of this
Agreement is not paid in full by the Corporation within ninety days after
such written claim has been received by the Corporation, Indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, unless such action is dismissed by the court as
frivolous or brought in bad faith, Indemnitee shall be entitled to be paid
also the expense of prosecuting such claim. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to make a determination prior to the commencement of such
action that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct under
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has not met the applicable standard of conduct.
The court in which such action is brought shall determine whether Indemnitee
or the Corporation shall have the burden of proof concerning whether
Indemnitee has or has not met the applicable standard of conduct.
5. ADVANCEMENT AND REPAYMENT OF EXPENSES. The Expenses incurred by
Indemnitee in defending and investigating any Proceeding shall be paid by the
Corporation prior to the final disposition of such Proceeding within thirty
days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such Expenses and an undertaking by or on behalf of Indemnitee
to the Corporation to repay such amount to the extent it is ultimately
determined that Indemnitee is not entitled to indemnification. In
determining whether or not to make an advance hereunder, the ability of
Indemnitee to repay shall not be a factor. Notwithstanding the foregoing, in
a proceeding brought by the Corporation directly, in its own right (as
distinguished from an action brought derivatively or by any receiver or
trustee), the Corporation shall not be required to make the advances called
for hereby if a majority of the disinterested directors determine that it
does not appear that Indemnitee has met the standards of conduct that made it
permissible under applicable law to indemnify Indemnitee and that the
advancement of Expenses would not be in the best interests of the Corporation
and its stockholders.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification
or advancement of the total amount thereof, the Corporation shall
nevertheless indemnify or pay advancements to Indemnitee for the portion of
such Expenses or liabilities to which Indemnitee is entitled.
7. NOTICE TO CORPORATION BY INDEMNITEE. Indemnitee shall notify the
Corporation in writing of any matter with respect to which Indemnitee intends
to seek indemnification hereunder as soon as reasonably practicable following
the receipt by Indemnitee of written notice thereof; provided that any delay
in so notifying the Corporation shall not constitute a waiver by Indemnitee
of his rights hereunder. The written notification to the Corporation shall
be addressed to the Board of Directors and shall include a description of the
nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and
as shall be within Indemnitee's power.
<PAGE>
8. DEFENSE OF CLAIM. In the event that the Corporation shall be
obligated under Section 5 hereof to pay the Expenses of any Proceeding
against Indemnitee, the Corporation, if appropriate, shall be entitled to
assume the defense of such Proceeding, with counsel approved by Indemnitee,
which approval shall not be unreasonably withheld, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of
such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Corporation, the Corporation will not be liable to Indemnitee
under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee
shall have the right to employ his own counsel in any such Proceeding at
Indemnitee's expense, and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Corporation, or (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of such defense or (C) the
Corporation shall not, in fact, have employed counsel to assume the defense
of such Proceeding, then the fees and expenses of Indemnitee's counsel shall
be paid by the Corporation.
9. ATTORNEYS' FEES. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover,
in addition to other amounts to which the prevailing party may be entitled,
actual attorneys' fees and court costs as may be awarded by the court.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee
is a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and shall continue thereafter so long as Indemnitee shall be
subject to any possible Proceeding by reason of the fact that Indemnitee
served in any capacity referred to herein.
11. SUCCESSORS AND ASSIGNS. This Agreement establishes contract
rights that shall be binding upon, and shall inure to the benefit of, the
successors, assigns, heirs and legal representatives of the parties hereto.
12. NON-EXCLUSIVITY.
(a) The provisions for indemnification and advancement of expenses set
forth in this Agreement shall not be deemed to be exclusive of any other
rights that Indemnitee may have under any provision of law, the Articles or
Bylaws, the vote of the Corporation's stockholders or disinterested
directors, other agreements or otherwise, both as to action in his official
capacity and action in another capacity while occupying his position as a
director or officer of the Corporation.
(b) In the event of any changes, after the date of this Agreement, in
any applicable law, statute, or rule that expand the right of a Delaware
corporation to indemnify its directors and officers, Indemnitee's rights and
the Corporation's obligations under this Agreement shall be expanded to the
fullest extent permitted by such changes. In the event of any changes in any
applicable law, statute or rule, that narrow the right of a Delaware
corporation to indemnify a director and officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
<PAGE>
13. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as
of the date set forth on the first page and shall apply to acts or omissions of
Indemnitee that occurred prior to such date if Indemnitee was a director or
officer of the Corporation or its predecessor, or was serving at the request of
the Corporation or its predecessor as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, at
the time such act or omission occurred.
14. SEVERABILITY. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The Corporation's inability, pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be severable
as provided in this Section 14. If this Agreement or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee to the fullest extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
15. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware without regard to its
rules pertaining to conflicts of laws. To the extent permitted by applicable
law, the parties hereby waive any provisions of law that render any provision
of this Agreement unenforceable in any respect.
16. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if delivered by facsimile transmission to the recipient
followed by a copy sent by mail on the same date as the facsimile transmission,
on the date of receipt of such facsimile transmission, or (iii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
17. MUTUAL ACKNOWLEDGMENT. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Corporation's right under public policy to indemnify Indemnitee.
18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
ASTOR HOLDINGS, INC.,
A DELAWARE CORPORATION
By:________________________
Title:_____________________
NOTICES SHOULD BE ADDRESSED TO:
Chief Financial Officer
Astor Holdings, Inc.
8521 Six Forks Road
Suite 105
Raleigh, North Carolina 27615
INDEMNITEE:
____________________________
[cad 157]FirstName[cad 179] [cad 157]LastName[cad 179]
____________________________
Street Address
____________________________
City, State and Zip Code
Position(s): [Position1]
[Position2]
[Position3]
[Position4]
[Position5]
[Position6]
[Position7]
[Position8]
[Position9]
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF ASTOR HOLDINGS II, INC
--------------------------------------
STATE OR COUNTRY
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
Astor Corporation Delaware
ABI Corporation Delaware
ABI Aquisition 1 plc Delaware and
England
ABI Aquisition 2 plc England
Astor Stag Ltd. England
Astor Stag S.A. Belgium
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 333-14913) of Astor Holdings II, Inc. and in the related Prospectus of
our report dated May 16, 1997, with respect to the consolidated financial
statements and schedule of Astor Holdings II, Inc. included in this Annual
Report (Form 10-K) for the year ended March 31, 1997.
Ernst & Young LLP
Buffalo, New York
June 27, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints each of John F. Gottshall, David E. Hawkins and
Boyd D. Wainscott his true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capabilities, to sign the annual report of Astor Holdings
II, Inc. on Form 10-K for the fiscal year ended March 31, 1997, and any and all
amendments thereto, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes or resubstitutes, may
lawfully do or cause to be done by virtue hereof.
WITNESS our hands this 30 day of June 1997.
/s/ Boyd D. Wainscott Chairman of the Board of Directors
- ---------------------------- and Chief Executive Officer (Principal
Boyd D. Wainscott Executive Officer)
/s/ C. Richard Spalton President and Director
- ----------------------------
C. Richard Spalton
/s/ John F. Gottshall Chief Financial officer (Principal
- ---------------------------- Financial and Accounting Officer)
John F. Gottshall
/s/ Alan J. Andreini
- ---------------------------- Director
Alan J. Andreini
/s/ Richard R. Crowell Director
- ----------------------------
Richard R. Crowell
/s/ Mark C. Hardy
- ----------------------------- Director
Mark C. Hardy
<PAGE>
/s/ Justin S. Maccarone Director
- ----------------------------
Justin S. Maccarone
/s/ Gerald L. Parsky
- ---------------------------- Director
Gerald L. Parsky
/s/ Richard K. Roeder Director
- ----------------------------
Richard K. Roeder
/s/ Charles E. Sax Director
- ----------------------------
Charles E. Sax
/s/ W. Montague Yort Director
- ----------------------------
W. Montague Yort
2
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0
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